note (as below) the Hughes P-MP OC3+ (~200Mbps) is currently in
testing by WCII
WCII: Network Update: New Services To Help Fill Greater Capacity
Deutsche Banc Alex. Brown - US Equities
Bo Fifer,Jeffrey L. Hines
September 10, 1999
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WINSTAR COMMUNICATIONS INC. [WCII] "STRONG BUY"
Network Update: New Services To Help Fill Greater Capacity
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Date: 09/10/1999 EPS 1998A 1999E 2000E
Price: 55.38 1Q (2.51) (3.72) (3.17)
52-Wk Range: 64 - 10 2Q (2.77) (3.53)A (3.06)
Ann Dividend: 0.0 3Q (2.83) (3.41) (2.76)
Ann Div Yld: 0.00% 4Q (3.80) (3.18) (2.49)
Mkt Cap (mm): 4,558 FY(Dec.) (11.89) (13.84) (11.48)
3-Yr Growth: FY P/EPS NM NM NM
CY EPS (11.89) (13.84) (11.48)
Est. Changed No CY P/EPS NM NM NM
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Industry: COMMUNICATIONS
Shares Outstanding(Mil.): 82.3
Return On Equity (1998) : 0.0%
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HIGHLIGHTS:
--WinStar held an investor conference last week (9-Sep) at its new network
testing and control facility in Washington, D.C.
--Recent developments in point-to-multipoint (PMP) technology leave fixed
wireless carriers with a theoretical ability to provision nearly 70,000
access lines (or equivalents) per hub site for every two licenses, AT A
COST OF UNDER $60/T-1.
--The company hinted that it may (eventually) target the residential MDU
market with a wholesale (carrier's carrier) strategy that we believe
could help load the network while keeping provisioning and customer
service "headaches" external.
--WinStar is testing wireless LAN technology that could bring to the 88%
of small businesses without a LAN the benefits of WinStar's broadband
access services.
--NET-NET: The meeting was (as usual) very bullish and while nothing
concrete was announced by the company, we remain optimistic that data
revenue and in fact voice line growth could ultimately prove to be more
explosive than our models account for. Maintain "strong buy" rating and
12-month price objective of $70, based on DCF.
DETAILS:
WinStar held an investor conference last week (9-Sep) at its new network
testing and control facility outside of Washington, D.C. Three important
points we took away from the meeting include: high-speed PMP technology is
here, residential could be a viable market after all, and bringing high-
speed demand to small businesses.
POINT-TO-MULTIPOINT CAPACITY REVIEW
Recent developments in point-to-multipoint (PMP) technology leave wireless
access carriers in an enviable position relative to capacity, with a
theoretical ability to provision nearly 70,000 access lines (or
equivalents) per hub site for every two licenses (or channels). WinStar's
average of nearly 8 licenses in the top 50 markets (with up to 14 channels
in some markets), implies a per-hub capacity of over 250,000 access lines
(or equivalents) per hub site, with capacity for nearly 500,000 lines in
its largest spectrum markets, based on currently available PMP radios.
According to management, WinStar is now taking delivery of 4xDS-3 radios
with a capacity of 180 Mbps (equivalent to an OC-3 plus a DS-3). We
believe it is currently technically feasible to break each cell site down
into 15-degree sectors, for a total of 24 sectors. In each sector, WinStar
can deploy a full 4xDS-3 PMP radio, alternating channel A and channel B so
as to reduce interference (which is why we said 70,000 lines per channel
pair):
180 Mbps/sector x 24 sectors / 0.064 Mbps/line = 67,500 voice lines
This analysis is limited to PMP environment. In a point-to-point
environment, the theoretical capacity per cell is significantly higher,
perhaps by a factor of 10x (PP radios have much "tighter" beams so let's
say 1-degree separation is required instead of 5-degrees, and only 1
channel is required per sector instead of 2). We still expect PMP to hit
prime time by late 1999, with significant ramp beginning in 2000, but we
are encouraged to see such high-capacity PMP radios hitting the market
today.
More importantly, at $6,500 per *incremental* building (WinStar's number,
which includes customer premise equipment and some hub-site cost
allocation), WinStar can provide broadband access at a cost of LESS THAN
$60 PER T-1. We doubt any other technology can match that cost basis
and supports the wireless position as the low-cost network.
IS THERE A WAY TO TARGET THE RESIDENTIAL MARKET AFTER ALL?
We recently were standing on top of a WinStar hub site in Chicago. Just a
few blocks away we could see a residential apartment building with hundreds
of units. It seems simple enough to install a high-capacity radio on the
roof top and offer services to the tenants, but in fact it is more
complicated for a number of reasons.
1) If there were 250 units in the building, installing each customer would
require 250 individual truck rolls and installs, which would be
prohibitively expensive.
2) If there is a problem with the link and service goes down, rather than
WinStar receiving one call or five calls as in a business customer premise,
the Company would suddenly receive 250 calls.
3) Over time as local phone competition develops, WinStar will have to
assess whether it can earn a return on its capital if churn rates begin to
emulate those in the residential long-distance industry.
By wholesaling the WinStar network to a residential CLEC aspirant, WinStar
could reap the benefits of greater network utilization without the inherent
pitfalls listed above. We suspect long distance carriers looking to crack
the residential market and CLECs such as RCN would be interested in
WinStar's fairly ubiquitous urban coverage (although NO names were
mentioned). We believe WinStar has begun to develop this model internally.
Although timing the initiation of service is more difficult to predict, we
believe WinStar is at least several quarters away.
WIRELESS LANs COULD BRING BROADBAND DEMAND TO SMALL/MEDIUM BUSINESSES
According to WinStar, 88% of small businesses do not utilize LAN technology
today. WinStar is working with several wireless LAN suppliers to provide a
complete turn-key solution for such businesses. By installing a single
radio on a building floor to enable up to 2 Mbps desktop/laptop
connectivity, WinStar hopes to create demand for its external broadband
pipes. After all, what good is a high-speed LAN that connects to the
outside world with dial-up access? Nothing imminent on this front either,
we believe, but stay tuned. |
