Subject: [NEXTEL-1] NXTL: Investment in `Extend (Interference to) America

From: [email-masked]
Date: Thu, 10 Jul 2003 22:55:40 -0400

Nextel Brings Interference To Cattle Country-

Stock rating: Underperform
Coverage view: Neutral
Large-Cap Value
Price: US$19.25
July 9, 2003

United States
NXTL: Investment in `Extend (Interference to )America`
Extends Rural iDEN Coverage; Maintain U/N

NXTL's agreement with upstart rural wireless carrier, Extend America, provides
NXTL an incremental benefit by expanding iDEN coverage in low population rural
areas. NXTL contributed its 800MHz spectrum in parts of North Dakota, plus a small
amount of cash, for an estimated 15% stake in the venture. The value to NXTL is in
being able to market a larger coverage area rather than in providing a significant
financial return given the venture will initially target an estimated 1,000
subscribers by EOY04. The network may be extended to include South Dakota,
Montana, Wyoming and Nebraska in '04, which we estimate could cost about $200mn in
capex. No commitments have yet been made for such funding. We maintain our
Underperform/Neutral rating on NXTL shares and reiterate concerns that PTT
competition, costs due to WLNP and uncertainty on the 800 MHz spectrum swap create
sizable downside risk, which has been heightened given NXTL shares are up nearly
70% YTD (vs. S&P 500 up 15%) and likely already reflect expectations of a strong
Q2.

HARD TO SEE HOW ECONOMICS WILL WORK BUT RISK TO NXTL ISMINIMAL AT THIS POINT.

While the areas where Extend America plans to launch service are generally less
competitive (Verizon, WWCA or AWE are in some or all of the proposed coverage
areas) there are also significantly fewer POPs. And such low population density
means network investment is likely to be large in proportion to the potential
financial opportunity. In fact, NXTP had options on the spectrum being used by the
venture and chose not to exercise them. That said, the investment makes sense for
NXTL given it contributed unused spectrum and minimal cash but will be able to market a
larger coverage area. Of course, expanding the venture to include additional
states would probably involve a greater capital outlay from NXTL and other
partners, which could change the risk/reward tradeoff.--

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