BS Jim Henry on NXLK:
James H. Henry
W. David Fore
Subject: Company Update
Industry: Telecom Services-CLECs
BEAR, STEARNS & CO. INC.
EQUITY RESEARCH
NEXTLINK Communcations* (NXLK 61 3/8) - Buy
Comments From NEXTLINK Management Dinner
______________________________________________________________________________
Key Points
*** New CEO Dan Akerson Will Be Instrumental In Taking NEXTLINK To The Next
Level.
*** The Company Will Be Poised To Attack The Large Business Customer Market
Segment.
*** We Expect NEXTLINK To Launch A Suite Of Enhanced Data & Internet Services.
INVESTMENT VIEWPOINT
Bear, Stearns & Co. Inc. hosted an investor dinner with NEXTLINK
Communications, Inc.'s new CEO Dan Akerson and its CFO Kathy Iskra on October
7, 1999. We walked away from the dinner with a clear understanding of
Akerson's enthusiasm for the NEXTLINK opportunity and his vision of what it
will take to bring the company to the next level. Both executives relayed that
the outlook for 2H99 is excellent and that the time is right to inject new
processes, products, and sales strategies into the company in order to
supercharge its growth. Akerson brings an unmatched level of telecom industry
experience with him to NEXTLINK at a time when the company is considered the
top name in the CLEC space. The company has already demonstrated its ability
to leverage its substantial network assets, its powerful sales force, a growing
portfolio of communications services, and its marquee name among CLECs in order
to deliver industry-leading growth and market share gains over the past year.
By virtue of these capabilities, NEXTLINK has established a position in the
competitive telecom industry that is second to none. Akerson will further
leverage NEXTLINK's already strong position to accelerate the company's growth
and put it in a position to compete head-to-head with the industry giants. We
expect that Akerson will drive expansion of NEXTLINK's product portfolio and
extension of its network reach while enhancing and refocusing its sales efforts
and restructuring its provisioning machine. At this stage in the company's
development, Akerson's leadership should be instrumental in creating
shareholder value and generating additional upside for the stock. We reiterate
our BUY rating on NEXTLINK with a target price of $75 per share.
NEW CEO IS A SEASONED TELECOM VETERAN
Dan Akerson comes to NEXTLINK with years of experience in the telecom industry.
Akerson was Chairman & CEO of Nextel Communications from March 1996 until July
1999. At that time, he became an investor in and Co-Chairman of Eagle River, a
holding company controlled by telecom legend Craig McCaw. At Nextel, Akerson
executed a remarkable turnaround of the business. During his tenure he solved
significant issues with the company's strategy, its technology, and its
customer focus. Akerson grew the company from a subscriber base of several
thousand to almost 4 million, driving revenue from $333 million in 1996 to an
annualized run rate in excess of $3 billion in 1999. Prior to Nextel, Akerson
was a general partner at private investment firm Forstmann Little where he also
served as Chairman & CEO of General Instrument Corporation, one of Forstmann's
technology portfolio companies. Before Forstmann Little, Akerson held senior
management positions at MCI Communications Corporation from 1983 to 1993,
including President & Chief Operating Officer. This background clearly
positions Akerson well to take the helm of NEXTLINK and maintain the company's
position as one of the best managed companies in the competitive telecom space.
VISION FOR THE FUTURE
Akerson touched on a number of priorities that he has for NEXTLINK during the
course of our dinner. One of his first priorities is to launch a suite of
enhanced data and Internet services that will leverage the company's end-to-end
broadband network and enable the company to target larger customers with more
sophisticated service needs. Akerson indicated that the company was well
underway with the internal development of this suite of services and that we
should expect to see commercial rollout during 1H00 if not sooner. Akerson's
second priority is to train the existing sales force to better cross-sell
multiple services - including data and Internet - and to hire additional sales
people to target national accounts. He agreed that the combination of MCI
WorldCom and Sprint will likely create a rare opportunity to hire highly
talented national accounts sales veterans and attack the Fortune 1000
customers. By enhancing NEXTLINK's product portfolio and supplementing its
sales capabilities, Akerson will position the company to go head-to-head with
industry giants like AT&T, MCI WorldCom-Sprint, the MegaBells, and larger
upstarts like Global Crossing, Level 3, and Qwest. From a structural
standpoint, Akerson intends to effect some changes in NEXTLINK's regional
structure in order to enhance the scalability of the enterprise. The company
will move from 7 separate regions to 5 separate regions and consolidate all
network, systems, OSS, and customer care operations on a national basis. By
moving some of the more complex decision making and planning out of the regions
and up to the corporate level, Akerson expects to generate higher levels of
sales productivity and more cost efficient operations. Beyond its domestic
growth opportunities, Akerson expects to pursue international markets like
Canada, Western Europe, and perhaps certain cities in Asia and Latin America.
Akerson also articulated broad financial goals, stating that SG&A expense must
decline as a percentage of revenue. We believe that the execution of this plan
will yield superior growth, higher margins, and strong returns to shareholders.
NEXT GENERATION NETWORK
NEXTLINK is leading the industry charge as it successfully transitions from a
voice-centric CLEC into a true integrated communications provider (ICP). This
transition is occurring as the company expands its product portfolio and
deploys the network assets necessary to facilitate this development. Akerson
said that its 16,000-mile inter-city fiber network from Level 3 is proceeding
ahead of schedule and is on track for completion by the end of 2001. He
mentioned that it will activate a segment in Texas later this year. Also, the
company completed an eight-switch ATM network in 2Q99, providing the foundation
for its DSL and LMDS service connectivity. On the local access end, we are
particularly pleased with NEXTLINK's 4-tier approach to offering local access
services to a variety of customers, including the small to medium enterprise
(SME) segment. NEXTLINK is very customer-centric in its approach to
understanding its customer's local needs, and it has all of the necessary
pieces of the technology puzzle to answer them. For example, for the top-tier
customer requiring Gbps-level local access, NEXTLINK can provide fiber
connectivity. To address the medium-tier, it can provide services ranging from
10 to 100 Mbps through its broadband wireless LMDS spectrum. Akerson said that
we should expect to see expansion of the company's LMDS spectrum footprint in
the near future at prices comparable to what the company paid for WNP
Communications. In addition, NEXTLINK can address the SME segment with its DSL
offerings, providing access speeds ranging from 384 Kbps to ~1 Mbps.
Management has projected in the long term that its local provisioning solutions
will be one-third fiber-based, one-third LMDS-based, and one-third DSL/copper.
We believe that NEXTLINK offers a local access portfolio that is hard to match,
and we fully expect NEXTLINK to leverage each portion of its local access
portfolio to its best advantage in the future. |
