Wireless Telecom: The Wireless Review
Cynthia M. Motz, CFA
Robert J. Hordon
CREDIT SUISSE FIRST BOSTON CORPORATION
Equity Research Americas
U.S./Wireless Telecommunications Services
The Wireless Review
Issue #43
Summary
Nextel reaches settlement with the DOJ, is now free to use 900MHz
spectrum to grow its capacity. We view this as very positive for
Nextel.
Iridium reported to have cut 15% of its staff in an effort to reduce
costs and revamp marketing strategy.
Globalstar launches four more satellites, bringing the total number
of satellites in orbit to 24.
Following its first "Wireless Day," the FCC announced a Notice of
Proposed Rule Making ("NPRM") as a result of which Calling Party
Pays ("CPP") will become an option to wireless carriers. The FCC
also prepared an NPRM to aid fixed wireless carriers against the
wireline incumbents. We view both events as very positive
developments for the wireless industry.
Introduction
Although a slower month than most (the first month without
any earnings reports since December 1998), June began with a
few interesting developments over the past two weeks. On
June 14, Nextel Communications announced that it had reached
an agreement with the United States Department of Justice for
an out of court settlement of Nextel's challenge of a 1995
Consent Decree prohibiting them from owning more than a
limited amount of 900MHz spectrum in 13 of the largest
markets in the United States. It was reported in the Wall
Street Journal on June 14, that Iridium has been cutting
staff over the past couple of weeks, and attempting to reduce
costs further to revamp its business and marketing strategy.
The FCC issued two Notices of Proposed Rule Making that are
supportive of Calling Party Pays and fixed wireless. As we
discuss below, we believe both represent very positive
developments for the industry. In other news, Globalstar
successfully placed four more satellites into orbit, and
Western Wireless closed on its transaction with CenturyTel
through which it acquired two cellular properties in Texas.
Nextel free to use 900MHz Spectrum to Expand Capacity
On June 14, 1999, Nextel announced that it had come to a
settlement with the United States Department of Justice for
an out of court settlement of Nextel's challenge of a 1995
Consent Decree prohibiting Nextel from owning or managing
more than a limited amount of 900MHz frequencies in 13 of the
largest markets in the United States. Although subject to
court approval, Nextel will now be permitted to own more than
half of the 900MHz channels allocated for SMR and other uses
in the Consent Decree markets. The Consent Decree will
expire on October 30, 2000. The benefit to Nextel is that
they will be able to add approximately 2.75 additional
megahertz in some of the largest cities in the country.
Presently, Nextel has about 15MHz in most of the largest
cities in the United States, with options for an additional
5MHz in the 800 band and an additional 5MHz in the 900 band
as well. Coupled with today's announcement, there is the
potential in the future, Nextel could own as much as 20-27.
5MHz in the largest markets in the country which is almost at
the level (or in some cases, even above) of other carriers.
In order to use the 900MHz spectrum, Nextel will need to deploy
an expanded-band 800/900MHz iDEN technology being developed by
Motorola.
Iridium attempts to cut costs, revamp business & marketing
Although Iridium's problems should no longer be surprising
news to anyone, the Wall Street Journal reported that the
company has been cutting its staff over the past couple of
weeks by about 15%, in order to reduce costs. It was
reported that the company presently has about 15,000
subscribers, however, Iridium has not (consistent with its
past practice) provided information about exact subscriber
numbers, and may not give specifics before the end of the
quarter. It was also reported that the company is attempting
to revamp its marketing effort, and has previously been
announced, Iridium has cut its price per minute, as well as
the cost of the handset somewhat. Iridium is expected to
take steps to further cut costs, as well as cut its per minute
and handset pricing in the future.
FCC Weighs in on Calling Party Pays and fixed wireless
In conjunction with the release of its fourth annual report
on competition in the wireless industry to Congress, the FCC
held its first ever "Wireless Day" event and later held a
press conference to discuss two Notices of Proposed Rule
Making ("NPRMs") that address two major issues in wireless: 1)
making Calling Party Pays ("CPP") an optional service for
wireless carriers, and 2) expediting the installation of
equipment on buildings and other structures for fixed
wireless operators. We believe the NPRMs represent a
positive step forward for wireless carriers in terms of
leveling the playing field with wireline operators in the
competition for local minutes. We are also very encouraged
by the FCC's positive view of wireless as an ultra-competitive
force in the telecommunications industry.
We believe the FCC will have to mandate that the local
exchange companies bill and collect for CPP or provide access to other
billing companies who can do this.
We think over the long-term, CPP will be a reality for the
entire United States based on the fact that the ability to
offer CPP will become a competitive advantage over time. In
the interest of fairness as well as logic, there will have to
be some kind of mechanism in place for the wireless carriers
to "bill and collect" either through the incumbent local
exchange companies or through other billing companies. However
, if the FCC just goes a little further-and we understand why
they probably could not make CPP mandatory at this point (
there likely would have been so many challenges and arguments
that nothing would actually ever get put into place)-we
believe the market/consumer will take over and mandate CPP.
We believe this is what the FCC is hoping will occur-they
will not need to mandate CPP, the market/consumer will do it
for them. While we believe full implementation of CPP would
be an ideal situation-and the one which is most beneficial to
the consumer, we believe whatever progress is made is good
for the wireless industry for several reasons. As FCC
Chairman Kennard discussed on the conference call, the
experience in other countries has shown that transferring the
cost of wireless usage to the caller accelerates penetration and
increases usage and ARPU.
Promoting Fixed Wireless
Another Notice also includes some proposed rules regarding
the installation of network infrastructure equipment on
buildings and other structures by fixed wireless operators,
like Winstar and Teligent. As with mobile operators, the FCC
wants to give fixed wireless players an opportunity to
provide a competitive alternative to local wireline service.
Fixed wireless carriers have been at the mercy of the
wireline local incumbents as well. We believe the FCC
adamantly supports these players and recognizes its
responsibility to them in ensuring a more level playing field.
The Wireless Industry Has a Powerful Ally in the FCC
We believe the FCC's agenda with both the CPP and fixed
wireless initiatives is to bring competition to the local
markets, which is arguably the biggest unfulfilled objective
of the 1996 Telecom Reform Act. In taking these steps, we
believe it is clear that the FCC views wireless technology as
its best shot at bringing competition to the local markets
and accomplishing its Congressional mandate.
Globalstar launches four more satellites
Globalstar announced on June 10 that it has successfully
placed four additional satellites into orbit, which brings
the total number of orbiting satellites to 24. The
satellites were launched from the Cape Canaveral Air Station
aboard a Boeing Delta II rocket. The company commented that,
with only two more launches of four satellites each, coverage
will be adequate for a regional roll-out in September.
Additionally, Globalstar believes its in-orbit satellites are
performing well, as hundreds of test calls have been placed
in both satellite and cellular mode. Call quality is
reportedly excellent. Globalstar also noted that its service
providers are now fine-tuning marketing and advertising plans
that are expected to go into effect at the end of the summer.
We are very encouraged by the progress made by Globalstar
this year, and look forward to what will hopefully prove to
be another two successful rocket launches in the very near future.
The Wireless Review
Issue #43
Western Wireless closes cellular acquisition
Western Wireless announced on June 1 that it has completed
its acquisition of the Brownsville and McAllen, Texas
cellular markets from CenturyTel. Western paid approximately
$96 million in cash for the properties, which serve a
population of 855,700 in Brownsville, McAllen, Harlingen and
South Padre. Western's total POPs now rise to approximately 8.5
million.
Companies mentioned in this report:
(Closing prices are as of June 14, 1999)
CenturyTel (CTL, $38.06, Not Rated)
Globalstar (GSTRF, $17.31, Buy)
Iridium (IRID, $5.38, Hold)
Nextel Communications (NXTL, $37.44, Buy)
Teligent (TGNT, $51.13, Not Rated)
Western Wireless (WWCA, $25.75, Buy)
Winstar (WCII, $53.38, Not Rated) |
