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Technology Stocks : Leap Wireless International (LWIN)
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To: Pierre who wrote (2272)6/27/2002 4:40:51 PM
From: Art Bechhoefer  Read Replies (2) of 2737
 
I talked with investor relations earlier today and asked if there was any news or comments that would explain the weakness of the stock. There were none, other than overall pessimism regarding telecom stocks, especially those that are not cash positive. The company expects to meet all its covenants except one--the ratio of total debt to total contributed capital--which is supposed to be met by 2004.

The statistic which interests me, and which in my view is most important as an indicator of future profits, is the percentage of subscribers who use only the Cricket service as a replacement for previously used wired phone service. Apparently some 28 percent fit this category so far. What this says is that demand for Cricket service in a given area may exceed demand for ordinary cellular service, which is used by most subscribers to augment wired service.

Also a second part of the Cricket service that hasn't gotten much play is long distance, which is charged at a flat 8 cents a minute, but which requires a prepaid account. The rate of 8 cents a minute is cheaper than most wired long distance services, which typically have higher rates during peak use periods and lower rates on evenings and weekends.

The pricing policy of Cricket service stands to create a higher rate of subscriber growth than for conventional cellular services. Now the big question is whether they can make any money at this.

Art
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