Subject: [NEXTEL-1] Nextel Communications Makes a Stunning Comeback

From: Marcel <[email-masked]>
Date: Mon, 24 Feb 2003 18:37:28 -0500

Stunning? One Analysts does not think so, he previously questioned Nexhell's accounting
methods and Nexthell called his Boss and Whined about him.......
If something is too good to be true, it usually is.
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Nextel Communications Makes a Stunning Comeback

Just a year ago, bankers were advising Nextel Communications to file for
Chapter 11 bankruptcy. The company was staggering under a huge debt
burden, its international unit was in trouble, and the wireless market as a whole
was slowing down. But the company decided not to take the advice. It has cut
its debt by $3.2 billion in 2002, gained 23 percent subscriber growth, reduced
capital spending by 38 percent, and cut the number of employees by 5,300
over two years. At the end of 2002, Nextel reported a profit. The next challenge
the company faces is competition for its Direct Connect push-to-talk service
popular with businesses such as construction companies and public safety
agencies. Verizon Wireless and ALLTEL are said to be close to introducing
competing services, and Sprint PCS is said to be developing a version of the
service, as well. Nokia, Ericsson and Siemens announced that they will jointly
promote a standard for making a push-to-talk service available over Global
System for Mobile networks, potentially enabling Cingular Wireless and AT&T
Wireless to offer the service.
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02/24 16:30
Nextel Turns
Around After
Shunning
Bankruptcy
Advice
(Update2)
By Tom Giles

Reston, Virginia, Feb.
24 (Bloomberg) -- A
year ago, Nextel
Communications Inc.
Chief Financial Officer
Paul Saleh and Chief
Executive Officer Tim
Donahue were urged
by bankers to file for Chapter 11 bankruptcy protection.

``A lot of folks were really concerned about Nextel's ability to survive,'' Saleh said
in an interview. The concerns: Nextel, the No. 5 U.S. mobile-phone company by
subscribers, had too much debt, its international unit had missed a loan payment
and customer growth was slowing.

The 46-year-old CFO and the 54-year-old CEO spurned the suggestion. Instead,
Saleh used cash and shares to cut debt by $3.2 billion in 2002, while the number
of customers grew 23 percent to 10.6 million. Donahue cut 5,300 jobs in the past
two years and lowered capital spending by 38 percent.

The result: Nextel made a $1.4 billion 2002 profit, the first profit in its 15-year
history, the company said last week.

Nextel stock, which fell as low as $2.50 in June from a March 2000 peak of
$82.94, is reviving. The shares have almost tripled in the past year, rising 188
percent, to close today at $13.38, up 2 cents. The next-largest increase in the
Barclays Capital index of wireless companies was for the American depositary
receipts of Russia's AO Vimpelcom, up 17 percent.

Nextel's ratio of debt to earnings dropped to 3.9 by the end of last year, from 7.3
a year earlier, Bloomberg data shows. That compares with 2.9 times earnings for
AT&T Wireless Services Inc., the biggest publicly traded U.S. wireless carrier.
That ratio measures debt compared to the company's earnings before interest,
taxes, depreciation and amortization.

Lower Interest Costs

Investors have rewarded Nextel by accepting lower interest payments on its debt.
Bonds maturing in 2009 today were trading at 101.5 cents on the dollar, yielding
9.1 percent. In July, they traded as low as 50 cents, yielding 24 percent -- a level
that suggests some investors were betting on default.

``They've done some significant repair to the balance sheet,'' said Eric
Misenheimer, who holds Nextel debt among the $500 million in high-yield bonds
he helps oversee at Northern Trust Corp. in Chicago.

One-quarter of Nextel's board seats are controlled by billionaire Craig McCaw,
who with his family agreed in 1995 to invest as much as $1.1 billion in Nextel in
succeeding years. McCaw's company, Digital Radio LLC, is the 11th-largest
shareholder in Nextel, according to Bloomberg data.

The biggest risk for Saleh and Donahue may now be rival products rather than the
weight of debt, investors said.

Push-to-Talk

Nextel targets corporate clients: construction crews, public safety agencies and
other businesses that communicate in groups. That has allowed it to charge the
highest bills in the industry, averaging $69 a month.

The company's mobile phones include a walkie-talkie device known as Direct
Connect, designed by Motorola Inc., that allows customers to talk to groups of
users at the push of a button. Verizon Communications Inc., the biggest U.S.
mobile-phone company, plans to introduce a push-to-talk product by the end of
the year for its Verizon Wireless unit, a joint venture with Vodafone Group Plc of
the U.K.

Alltel Corp., the No. 7 U.S. wireless carrier, intends to test a similar product this
year. And Sprint Corp.'s wireless division, Sprint PCS, the fourth-largest U.S.
mobile phone company by customers, is working on push-to-talk phones. None
of the companies has given much detail.

``Companies like Verizon Wireless will eventually get a service that's
comparable,'' said Michael Mahoney, manager of the $150 million
Communications and Technology Fund at EGM Capital in San Francisco, which
sold its Nextel shares earlier this year. ``That may cause Nextel to lose some of
its premium.''

GSM

Nokia Oyj, Ericsson AB and Siemens AG last week said they will jointly promote
a standard that will let carriers offer a push-to-talk service over the so-called
Global System for Mobile Communications, or GSM, and related networks.

That would pave the way for Cingular Wireless LLC and AT&T Wireless, the
second- and third-largest U.S. mobile-phone service providers, to sell a
walkie-talkie feature. Both use GSM technology. AT&T Wireless Chief Financial
Officer Joseph McCabe said at a conference today the Redmond,
Washington-based company will test a walkie-talkie feature in Seattle by year's
end.

``Nextel's push-to-talk solution will fade over time,'' said Kaufman Bros. analyst
Vik Grover in a research note this month. ``We recommend investors exit
positions in Nextel.''

Nationwide

In an attempt to stay ahead, Nextel is taking Direct Connect nationwide.
Currently, the push-to-talk function works in local calling areas, and between a
limited number of cities, such as New York and Boston. Later this year, Nextel
customers will be able to talk to each other across the country. The company will
also sell handsets with longer battery life and cameras attached.

Nextel's Donahue says it will take years for the competition to match the sound
quality and speed of the company's product. ``There isn't anything on the horizon
that we can see that's going to compete with us any time soon,'' he said in an
interview.

For now, some investors agree.

``I don't think Verizon and Alltel would be making all this noise if they weren't
relatively close to having something similar,'' said John Maxwell, an analyst at
Waddell & Reed Financial Inc., holder of 700,000 Nextel shares at the end of
2002. ``Just having it doesn't mean you can sell it. It's going to be a while before
it hurts Nextel significantly.''

The walkie-talkie phones, introduced by Nextel in 1993, have boosted annual
revenue 53 percent in the past two years, reaching $2.33 billion in the last three
months of 2002. Profit reached a record $1.47 billion, the third consecutive
quarter in the black.

While CEO Donahue and his team develop the products, former Walt Disney Co.
executive Saleh has focused on reducing debt.

Chapter 11

Though he rebuffed advice to seek bankruptcy for the whole company, Saleh put
NII Holdings, the company's international division, into Chapter 11 in May. He
bought back $3.2 billion in debt and preferred securities directly from bondholders
in the last three quarters of last year, and said he may do more in coming
months.

Moody's Investors Service analyst Marcus Jones last month raised his outlook on
Nextel's debt to stable from negative, the first time in two years Moody's lifted a
rating on a phone company. Moody's now ranks Nextel debt B3, six levels below
investment grade. AT&T Wireless is at Baa2, two levels above non- investment
grade.

http://quote.bloomberg.com/fgcgi.cgi?T=marketsquote99_relnews.ht&s=APlqO9RZmTmV4dGVs
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