Subject: [NEXTEL-1] Wireless carriers play follow-the-leader

From: "Rik Rasmussen" <[email-masked]>
Date: Tue, 1 Jul 2003 06:29:02 -0400

Industry Watch | Multex Investor

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     Industry Watch By John Filar Atwood, Equity research columnist, Multex
Investor

                  Wireless: Wireless carriers play follow-the-leader
                  01 Jul 2003

                        Verizon Wireless solidifies its market-leading
position by announcing its support for wireless number portability

                       John Filar Atwood
                                Equity research columnist
                                Multex Investor

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                       Get quotes or browse Research for companies mentioned
in this article
                                AWE
                                AT&T WIRELESS SERVICES
                                Quote | Research Reports

                                NXTL
                                NEXTEL COMMUNICATIONS
                                Quote | Research Reports

                                PCS
                                SPRINT PCS GROUP
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                                VZ
                                VERIZON COMMUNICATIONS
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                        Last week, Verizon Wireless did an abrupt about-face
and threw its support behind the FCC's impending rule change on wireless
number portability (WNP)—which will allow subscribers to take their phone
number with them when switching wireless carriers—scheduled to take effect
in November. Verizon had been vigorously fighting the measure, but by making
the move, the joint venture of Verizon Communications (VZ) and Vodafone will
set itself apart from the competition and may further solidify its
market-leading position even as the implementation of WNP causes turmoil in
the sector.

                        A defining event

                        "Verizon's announcement implies that they are
confident in their market position as WNP emerges," Cannon Carr of CIBC
World Markets tells MultexInvestor.com. "It underscores our view that
Verizon Wireless is aggressively positioning itself to be the quality
network provider."

                               Continued below

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                        Carr believes the implementation of WNP will set the
stage for the next shakeout of winners and losers in this highly competitive
industry.

                        "Verizon, Nextel Communications (NXTL), and T-Mobile
(a unit of Deutsche Telekom) have taken the early lead in meaningful
differentiation, with Verizon Wireless the clear winner with the most upside
under WNP," he says.

                        New charges now less certain

                        Differentiation is a key consideration for investors
sizing up wireless stocks. Carriers now offer very similar services at about
the same price, so investors need to find those firms that can set
themselves apart, however slightly, from the competition.

                        Verizon did just that last week by promising that it
will not charge any new fees to customers who want to keep their original
phone numbers after switching to Verizon.

                        "Verizon has made a very strong and differentiated
move with this announcement," says Lehman Brothers' Blake Bath. "The company
waited until after the other carriers had announced or implemented their
monthly charges and is now poised to benefit from the goodwill it will
create by being more consumer friendly."

                        Both AT&T Wireless (AWE) and Sprint PCS (PCS) have
said that they will charge $1.75 per month plus a porting fee to customers
who want to keep their numbers after switching, but both companies may now
feel some pressure to reduce or remove those rates.

                        Verizon's service advantage

                        Until Verizon's announcement, it was thought that
carriers would have to charge additional fees to mitigate the cost of
infrastructure upgrades—currently estimated at $1.2 billion—and the expected
$1 billion in WNP-induced customer-turnover (or "churn") costs.

                        Verizon has already spent $100 million on WNP
upgrades and doesn't seem to feel that the projected $0.10 to $0.15
per-subscriber-per-month cost is too high.

                        "Verizon has consistently generated industry-leading
profitability margins and free cash flow," says Bath, "and therefore is not
likely as concerned about the operational cost of WNP implementation as some
of its less profitable competitors."

                        If Verizon's approach forces other carriers to
eliminate their WNP fees, then service quality is likely to become the
primary differentiator among wireless operators when WNP arrives. It is here
that Verizon has a clear advantage: The company's network is widely
considered to be the industry's most dependable, and Verizon has cemented
that notion with its successful "Can you hear me now?" ad campaign.

                        As a result, Verizon pulls in 25 percent to 30
percent of the industry's new subscribers, despite having some of the
highest prices in the group.

                        "Verizon's high share of net adds is attributable to
the perception that it has the best quality, most reliable network," says
Carr.

                        The company's large network has also given Verizon
the second-lowest churn rate in the industry at 2.1 percent—just behind
Nextel's 1.9 percent—despite having the largest subscriber base (33.3
million).

                        Carr notes that Verizon is committed to retaining
its position as the premium wireless network, and the company has earmarked
a substantial amount of capital expenditure for network upgrades over the
next two years.

                        While network quality will be Verizon's big draw
once WNP enables subscribers to switch more easily, other carriers will have
to find their own competitive niche or be left behind.

                        "WNP will force carriers to establish a truly
differentiated position or become marginal players," says Carr.

                        About the Author | Email Author

                              Other recent articles from John Filar Atwood
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                              More from John Filar Atwood

                              Research Reports of interest
                                 Industry Commentary: Court Denies Wireless
Industry Number Portability Challenge
                                06 Jun 2003
                                 DC CIRCUIT UPHOLDS FCC'S WIRELESS LNP
RULES; FCC MAY TRY TO CLARIFY WLNP ISSUES BEFORE LABOR DAY; WE DON'T EXPECT
CONGRESS TO DELAY LNP
                                06 Jun 2003
                                 2Q Likely to Remain Upbeat in Wireless
                                12 Jun 2003

                              See the full Research Reports Collection

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