Subject: [NEXTEL-1] Nextel Connects Again

From: [email-masked]
Date: Wed, 22 Oct 2003 16:30:22 -0400

Nextel Connects Again

By Dave Mock 
October 22, 2003 

Nextel Communications (Nasdaq: NXTL) knocked analysts for a loop once 
again this week when it reported third-quarter results. The 
impressive numbers continued Nextel's recent trend of blockbuster 
performance, distancing the company from its peers.

Nextel reported net income of $348 million, down slightly from $383 
million a year ago largely due to debt retirement charges. Revenue 
rose a healthy 27% to $2.89 billion from $2.28 billion. Showing 
continued confidence, the company again raised guidance, upgrading 
its outlook from $1.00 to at least $1.15 EPS for the year.

But the most impressive part of Nextel is the numbers behind the 
numbers -- those metrics that tell how well a business is performing 
in a brutally competitive market. Evidence here shows that Nextel has 
been on a tear for the last 18 months, taking a business that was 
once buried in debt (and facing bankruptcy) to the highest performer 
among all the major U.S. wireless carriers.

The company's recent performance metrics are untouchable: 646,000 
subscribers added in the quarter, average revenue per user (ARPU) of 
$71, and a rock-bottom churn rate of 1.4% -- the lowest rate of any 
carrier. Stellar operations lead to impressive cash flow -- the 
company now expects to generate more than $1 billion in free cash 
flow this year, almost double the $600 million projected earlier. But 
far from a one-hit wonder, Nextel's improvement has been steady for 
several quarters, and the writing was on the wall months ago.

Skeptics argue that Nextel owes much of its performance to its 
signature Direct Connect service, which is now under attack from the 
competition. Recently, Verizon Wireless (NYSE: VZ) launched its own 
Push-To-Talk (PTT) service and SprintPCS (NYSE: PCS) is rumored to 
launch the same by year's end. AT&T Wireless (NYSE: AWE), Cingular (a 
joint venture between SBC Communications (NYSE: SBC) and BellSouth 
(NYSE: BLS)), and T-Mobile, subsidiary of Deutsche Telekom AG (NYSE: 
DT), also have expressed intentions to implement similar services in 
2004.

But the recent threats don't seem to be bothering Nextel. And for 
good reason -- since Nextel's PTT offering is proprietary, they 
actually stand to lose few customers. Dumping Nextel and picking up a 
competing service would divorce subscribers of all their walkie-
talkie contacts. And since the lion's share of Nextel's customers are 
business accounts with multiple units, switching is a very costly 
proposition.

While the future is never certain, figures continue to show Nextel's 
making the right connections.

Dave Mock is co-author of Tapping into Wireless, the first book 
dedicated to investing in wireless companies. He owns shares of 
Nextel. He welcomes your feedback and fish stories at 
[email-masked]

http://www.fool.com/News/mft/2003/mft03102211.htm

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