Nextel AGM meeting notes....courtesy of Chanelops over on the Yahoo Nextel board.
finance.groups.yahoo.com
OK, I'm back, with lots to report. This could get long – if it does,
I'll break it into two parts.
I had several good offline chats at the meeting, including one-on-one
time with TD, Barry, Paul, Morgan and others. This has become an
annual ritual with me, and I think/know several of them recognized me
from previous years and/or lives.
Where to start? Let's begin by talking about spectrum. The key
takeaway in this area is that more spectrum for voice communication
is NOT required for several more years. The existing network has
plenty of capacity left, and the 6:1 vocoder will only add to that.
(More on the vocoder later) In addition, about 2/3 of the handsets
out there are capable of operating on the 900 mHz spectrum that
Nextel has, which they have not even begun using, as I understand
it. So there is plenty of voice capacity available for the near and
mid-term.
What that means is that the Nextel doesn't NEED to move or reband.
However, the FCC does have a substantial and real interference
problem, which THEY need to get resolved. But TD was clear that if
the consensus plan was not accepted, it would have no operational
impact on N
The value of additional spectrum is to implement advanced data
services. The company can do this with the 2.5 GHz licenses they
own, but they do not cover the entire country. However, I think that
if they got together with Sprint, they would. And, I also THINK (but
don't know), that they are talking to Sprint about this. TD didn't
say so, or even imply it, but reading between the lines when we were
talking, I think it's happening. (see below for more on this)
But there's no assurances that such a deal could be worked out, of
course, so you need a backup, and that's where the 1.9 Ghz spectrum
comes in. I got the impression that the 2.1 would work just as well,
except that there's a big problem: the guys using that band now are
VZ and Cingular, the ones who are fighting N tooth and nail. You
know they won't make it easy for N to take over that spectrum,
particularly given VZ's decades-long history of obstructing
competition at every turn. So that's really the main reason, as I
understand it, why N is standing so firm on 1.9. It's not the
spectrum itself that's the problem, it's who's using it that's the
deal breaker.
I asked Barry about the timetable for using this new spectrum
(Arnie's question), and he said that if there were no lawsuits, it
would take them a couple of years to clear 1.9, and they could begin
using it in 2007. That's about the time that he expects VOIP mobile
equipment and software to be ready, so it could conceivably be used
for voice then, as well as the data used that are their main target.
He is still focused on competing with Cable and DSL, but with the
added benefit of mobility, and selling that package for $30 to
$50/month, which he said means that it can't cost N more than
$20/month.
Tim also reiterated that he expects the FCC decision in the next 30
days, and that they won't take the 2.1 spectrum. He also told me
that the fighting is "hand-to-hand, in the trenches". Bob Foosaner
is leading our charge, but he has many high level troops working on
this, as you saw in the Washington Post story earlier this week.
Moving on, let's talk vocoders. Barry said that the 6:1 is seeding
next month, and that it will be early '05 to start seeing the
benefits. I also think I heard him say that there would be further
improved models coming along later. I assume that by "further
improved" he is talking voice quality, not more compression, although
that could conceivably be possible, too. TD told me that the extra
costs associated with having to do more cell splitting due to not
having the new vocoder in time were on the order of $100M. That begs
the question of how much more would they be next year, if it still
wasn't ready? Unfortunately, I didn't think of asking that at the
time. (and I doubt he would know the answer, anyhow)
Paul Saleh mentioned that they have called the $600M of 6% convert
that is outstanding, and the holders will have the option of taking
stock at $24.80/share, or cash. If the stock doesn't rise, they make
take cash. That doesn't worry Paul, he said that if they wanted to,
that cash could be replaced with a new convert with a 1-2% rate,
instead of 6%, so it's a good deal for the company.
While I'm on the subject of Paul, he said that they will continue to
delever when it makes sense. For example, there is a $1.6B issue
callable in November, and they may do that, or refinance it. Debt is
down to about $10B, and there's $3B in the cash on hand. (Remember
when the debt used to be $18B?)
More finance stuff: I asked Paul about Arnie's question of then the
earnings will become taxable. I got a very long and complicated
answer, because it's a complicated subject, but the bottom line is
that you can expect to see earnings taxed at 35% before the year is
out.
I asked Richard's question about the availability of the camera
phone, and PB told me that there would be a low-quality (that's MY
term, not his – he said it would be good quality) camphone with
a .3Mpixel camera available in Q3, and a much better phone (again, my
words) with a 1.3 Megapixel camera would be available before Xmas.
While on the subject of Richard's questions, I also asked about the
availability of the international BREW/iDEN DC gateway, and Barry
told me that it would be available in the fourth quarter.
I also was able to hear TD's explanation of his stock sale, which Al
wanted me to ask. I was talking to TD when someone else I know
joined us and proceeded to ask TD why he was selling so much stock,
beating me to the punch. Anyhow, the answer is as follows: he owns
or has options for 7 million shares. His financial advisors have
been pounding on him to diversify, and he had not sold any shares for
four years. So, he has filed a Rule 10b-5-1 plan, which "..permits
employees, officers and directors to implement pre-arranged trading
plans when they are not in possession of material nonpublic
information. These plans can allow individuals to gradually diversify
their investment portfolio while minimizing the market effect of
stock sales by spreading them out over an extended period of time and
avoiding concerns about initiating stock transactions while in
possession of material nonpublic information. Once a plan is
established, the employee, officer or director does not retain or
exercise any discretion over sales of stock under the plan and the
pre-planned trades can be executed as set forth in the plan without
regard to any subsequent material nonpublic information that the
employee, officer or director might receive." (Thought I'd insert
that explanation for those of you not familiar with these. The
bottom line is that the sales become programmed, and usually take
place over an extended time, like years.)
Personally, I've been in the same situation of needing to diversify
out of Nextel, so I understand exactly how he feels, and it doesn't
bother me at all. (Of course, I'm not Nextel's CEO, but from the
standpoint of needing to diversify to ensure the financial security
of your family, it's the same situation.)
OK, what else is left? Oh, yes, this is interesting: Nextel owns 10%
of Flarion! Yes, you heard that right. Apparently the reason to do
this is that it gives N the right to influence the direction of their
development effort. Now, we've all read that Sprint is suddenly
testing Flarion.... does anyone on this board still think that N and
Sprint aren't talking about 2.5GHz? (and maybe more)
I had a brief chat with Morgan. He has just finished 6 months of
relaxing after leaving N as an employee (he's still on the Board of
Directors), and is looking forward to new challenges. He's a good
guy, and I wish him another repeat of his success in Nextel with
whatever he's going to do.
OK, that's my report. What I see is a company hitting on all
cylinders, in good command of its operations and markets. (Tim
alluded to the fact that momentum was "continuing") Clearly, there
are some misperceptions about N's spectrum situation out in the
marketplace, and the company needs to work hard to correct those, and
fast. But, I see no reason to be concerned about the future of the
company, and if you're comfortable with the wireless sector and
general stock market conditions, this looks like a buying opportunity
to me. But do your own due diligence -- after all, it's YOUR money. |
