Subject: [NEXTEL-1] What's next for Nextel?- The wireless carrier reported strong first-quarter numbers but it's no longer a market darling.

From: [email-masked]
Date: Thu, 22 Apr 2004 15:24:35 -0400

What's next for Nextel?- The wireless carrier reported strong
first-quarter numbers but it's no longer a market darling.

April 22, 2004: 1:04 PM EDT
By Paul R. La Monica, CNN/Money senior writer
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NEW YORK (CNN/Money) - There's been
good news galore from companies in the
wireless sector recently.

Cell phone carriers Sprint PCS and Cingular
earlier this week reported relatively strong
subscriber and revenue growth for the first quarter.

And equipment companies Texas Instruments, Motorola, and Qualcomm all
posted spectacular results for the latest quarter.
That brings us to Nextel, one of the best performing wireless companies
in recent years thanks to its DirectConnect push-to-talk technology,
which made the cell phone company popular with blue-collar workers and
others in the business and corporate market.

Nextel reported outstanding
first-quarter results Thursday morning.
Earnings more than doubled, sales
jumped 31 percent and the company
added 474,000 subscribers.

The news helped boost the stock nearly 2 percent Thursday but Nextel
(NXTL: Research, Estimates) is no longer the market darling it once was.
The stock is off more than 10 percent so far this year and analysts are
starting to express concerns about whether Nextel can remain one of the
top companies in the sector.

Competition's picking up ...

For one, while Nextel reported a nice gain in subscribers, it was less
than many analysts were expecting. "I was disappointed," said Patrick
Comack, an analyst with Guzman & Co., who said that he and others on the
Street were looking for Nextel to add more than 500,000 subscribers in
the quarter.
Nextel has yet to start selling camera
phones, Comack noted, one of the
hottest products in consumer
electronics, hurting growth. And
Nextel appears to have taken a hit
from new rules that allow cell phone
users to switch carriers but keep their
numbers.

Nextel was expected to be relatively
immune from number portability, but
the company's churn, a level of customer retention, rose from 1.5
percent in the fourth quarter to 1.7 percent in the first quarter.
Nextel's churn rate is still the lowest in the industry but the rise is
still a concern, Comack said.
Longer-term, there are worries about Nextel losing its unique edge.
Verizon Wireless, Sprint and Alltel have launched their own push-to-talk
offerings.

"There are concerns about rising competition and there is still more to
come," said Kevin Roe, an analyst with Roe Equity Research, who points
out that Cingular and T-Mobile will probably have their own
walkie-talkie like services in the near future. Cingular is co-owned by
Baby Bells SBC and BellSouth.
...and so should capital expenditures

But perhaps the biggest issue facing Nextel is that it might be forced
to raise spending substantially to stay competitive, which could eat
into profits and cash flow.

To that end, Nextel is trying to get a new piece of the wireless
spectrum from the Federal Communications Commission since there is often
interference between Nextel's call traffic and frequencies used by
public safety departments during emergencies.
Nextel has proposed a spectrum
swap (i.e., it will get the new
spectrum for free) but has also
offered to pay $850 million to public
safety departments nationwide so they
can upgrade their equipment. But
competitors such as Verizon Wireless
have criticized Nextel's plan, arguing it would be getting valuable
spectrum on the cheap.

For that reason, analysts expect the FCC to charge Nextel as much as $2
billion to use new spectrum, in addition to the $850 million payout for
equipment upgrades. But Nextel could be forced to pay more since Verizon
Wireless has proposed paying at least $5 billion for the spectrum.

Regardless of how that controversy pans out, Ben Abramovitz, an analyst
with Jefferies & Co., adds that Nextel will also need to spend billions
more over the next few years to upgrade its network and make it able to
transmit high-speed data.
If Nextel does not upgrade, it could lose ground to companies like
Verizon Wireless and Sprint, which have been aggressively promoting data
services.

With all that in mind, Abramovitz
thinks the stock, despite its recent
pullback, is not that much of a
bargain right now. He thinks it's
fairly valued at $26, about 3
percent higher than where it was
trading Thursday.

The bottom line is that Nextel, like
many other tech stock darlings of
2003, is a bit of a victim of its own
success. The stock soared 144
percent last year, as investors
recognized that Nextel did a good
job trimming debt, adding
subscribers and generating the
most revenue per customer in the
wireless sector.

But that's old news. Once Wall
Street has a better idea of what's
next for Nextel, the stock might be
ready to head higher once again.

Analysts quoted in this story do
not owns shares of Nextel or
other companies mentioned.
Guzman & Co. has done
investment banking for Nextel
but the other firms have no
investment banking ties to the
company.

http://money.cnn.com/2004/04/22/technology/techinvestor/lamonica/#
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