Subject: [NEXTEL-1] Nextel's numbers were fantastic, but it, and other wireless stocks, didn't do much on the news.

From: [email-masked]
Date: Thu, 16 Oct 2003 15:44:55 -0400

As good as it gets for wireless?

Nextel's numbers were fantastic, but it, and other wireless stocks, didn't do much
on the news.
October 16, 2003: 3:37 PM EDT
By Paul R. La Monica, CNN/Money Senior Writer

NEW YORK (CNN/Money) - In the spirit of Nextel's new ad campaign, which shows
people getting things done quickly thanks to its push-to-talk service, I present
the following recap of the company's stellar third-quarter earnings report.
"Higher revenues." Ba-beep. "Strong subscriber growth." Ba-beep.
"Raised earnings guidance." Ba-beep. "Stock soars." Silence.
"Uhh, I said stock soars." Static. "Hello? Can you hear me now?"

Yup, shares of Nextel (NXTL: Research, Estimates) rose only slightly Thursday even
though it reported third-quarter sales that exceeded expectations and lifted
guidance for full-year earnings.

With those numbers, you'd expect Nextel's stock, and the shares of other wireless
companies for that matter, to be substantially higher.  But competitors AT&T
Wireless (AWE: Research, Estimates) and Sprint PCS (PCS: Research, Estimates),
which will report their third-quarter numbers next week, actually fell Thursday.
Why the investor disconnect?

Wall Street appears to think that the third quarter will be the best the wireless
group has to offer a while.
There is a season, churn churn churn

One problem that promises to shake up the industry is the long-awaited FCC rule
change that allows wireless customers to keep their cell phone number when they
switch carriers. It takes effect Nov. 24.

So far, carriers have been able to demonstrate low churn rates, good for profits
since customers who switch services a lot aren't as profitable as faithful ones.
But that is likely to change.

Robert W. Baird analyst William Power said he expects all the major wireless
carriers to report strong third-quarter subscriber additions and little change in
churn as well, but that investors should not get too excited. Going forward, he
thinks churn rates will probably start rising throughout the industry.

Given this backdrop, he said the tepid reaction to Nextel's earnings made sense.
The stock has doubled this year, after all. "It's a combination of expectations
already having been very high and the stock having rallied ahead of the news,"
said Power.
BellSouth (BLS: Research, Estimates) and SBC (SBC: Research, Estimates), which
co-own Cingular, will release their earnings next week. Verizon (VZ: Research,
Estimates), which co-owns Verizon Wireless with Vodafone (VOD: Research,
Estimates), is on tap to report earnings Oct. 28. And Deutsche Telekom (DT:
Research, Estimates), which owns T-Mobile, is scheduled to report its latest
results in November.

Nextel and Verizon in the best shape

And the scary thing for the rest of the industry is that Nextel has arguably the
strongest fundamentals right now, with the lowest churn rate due to satisfaction
with its Direct Connect walkie-talkie service.
The company also generates the highest monthly average revenue per user (ARPU) in
the business, helped by the success of its recent offer of $10 a month for
unlimited national calls on the Direct Connect service.

So Nextel is probably in the best position to weather the looming number
portability storm.
But other carriers, which are primarily competing on price and quality of service,
may have a tougher time.
Based on Nextel's strong report, Verizon's entry into the push-to-talk market
hasn't hurt Nextel . And despite a plethora of ads for snazzy phone services, such
as pictures and Web access, there is skepticism about whether this will be what
keeps customers happy and truly add substantially to revenue.

"People don't care about data speeds and picture phones just yet. That's not what
people buy cell phones for. They want reliable voice quality all over the place,"
said Thomas Friedberg, an analyst with Janco Partners, a research firm focusing on
telecom.

Along those lines, Friedberg said Verizon has the best quality of service and
should gain the most customers from wireless portability while Sprint PCS will be
the big loser.

He added that the other three carriers will probably "tread water."

And the number portability concern probably will probably plague the industry
until at least the second quarter of next year. While some expect that a flood of
people will rush to change carriers as soon as the rule takes effect, that's
probably not going to happen since many customers are locked into contracts.

"There will not be a surge in one quarter. This gets played out over first six
months of next year as opposed to just one month," said Ben Abramovitz, an analyst
with Jefferies.

That's not great news for Nextel or Verizon, but it will probably hurt AT&T
Wireless, Sprint PCS, SBC, and BellSouth the most.

Analysts quoted in this story do not own shares of any of the companies mentioned
and their firms have no investment banking relationships with them.

http://money.cnn.com/2003/10/16/technology/techinvestor/lamonica/#

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