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Technology Stocks : Broadband Wireless Access [WCII, NXLK, WCOM, satellite..]
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To: SteveG who wrote (753)10/5/1999 9:53:00 AM
From: SteveG  Read Replies (2) of 1860
 
from Paine Webber's John Hodulik: WCII: WinStar leases fiber from MFN in 41 markets
October 5, 1999

KEY POINTS

* WinStar announced this morning that it has signed a $316 million
agreement to purchase dark fiber in over 40 markets from MFN. The capacity will be used to connect its hub sites and provide direct access to a handful of buildings in each city. WinStar will pay the nominal amount over a 20-year period.

* Currently WinStar leases DS3 connections, a major operating expense costing the company roughly $1 million per month, or 3.6% of Q2 telecom sales.

* This deal will allow the company to boost gross margins by converting an operating expense into a capital expense. By 3Q00, we had expected these operating costs to rise to $2.5 million per month, or roughly 5% of sales.

* Gross margins in our model increase to the high 40% level (from 24%
in Q299) by year-end 2000. This development gives us further comfort with those numbers.

* We believe this contract is further proof of the company's new focus
on facilities-based service that will drive margins and make the company more attractive to potential suitors.

* Expect the WorldCom - Sprint transaction to highlight the value of
spectrum as these carriers seek to overcome regulatory hurdles by pointing to the new entity's ability to roll-out residential wireless broadband on a large scale.

* Maintain Buy rating on WinStar shares with a 12-month price target
of $62 per share based on our DCF analysis.

* Risk: Risks investors face include technological change, potentially
adverse regulatory rulings, substantial operating and financial leverage, continued dependence on the capital markets and increasing competition from larger carriers.
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