Long but good article.........released 11:30 P.M. friday
Mar 6, 1998 (LAND MOBILE RADIO NEWS, Vol. 52, No. 10) -- Nextel
Communications Inc. [NXTL] was the bearer of bittersweet news Wednesday
when it announced that despite nearly 1 million subscribers added
during 1997, it was facing losses of $1.6 billion.
The consolidated net loss to shareholders for the fourth quarter was
$841.5 million, or $3.18 per share, and $1.64 billion, or $6.59 per
share, for the year. "Nextel's financial results for the fourth
quarter include significant improvement in operating cash flow losses
over the third quarter, despite the more than doubling in international
operating losses generated from the buildout of international
operations," said Steve Shindler, Nextel's chief financial officer.
Reported Loss May Not Be Sore Point Yet
However, not all those watching the wireless giant were fazed by the
news. For some, the heavy loss was no surprise and not even seen as a
bad omen. According to David Freedman, managing director for Bear
Stearns, the announcement was the result of many things, some of which
pointed to the fact that Nextel is coming out of its debt.
"We expected them to announce the loss. If you didn't know that, you
didn't know what the company was doing," Freedman said. Nextel had
paid off some of its debt earlier in the year and had to pay fees
associated with that, as well as taxes, he explained, thereby incurring
some of the loss.
On the bright side of the 1997 final results was the improvement in
revenues, a 202 percent increase in fourth quarter radio service
revenue compared to the 1996 fourth quarter. The company also
announced ownership interests in Argentina and Mexico and an
international investment in Peru.
As previously noted, the company added 970,400 subscribers for its
combined wireless phone, specialized mobile radio (SMR), and paging
offering across the United States, bringing the total number of
subscribers to 1.27 million. This represents a 323 percent increase
from the end of 1996, when it had a total of 300,300 subscribers.
Nextel's fourth quarter operating cash flow loss narrowed to slightly
more than $112 million from nearly $119 million in the prior
three-month period, which Shindler called a "significant improvement"
in light of higher operating losses stemming from SMR buildouts going
on in international markets. Nextel's revenues registered major growth
last year, increasing some 122 percent to nearly $739 million, of which
slightly more than $275.1 million was generated during the fourth
quarter (up 187 percent from the 1996 period). Radio service accounted
for the bulk of the company's revenues--more than $267.6 million for
the quarter, and more than $712.2 million for all of 1997.
Bell Atlantic Tosses Its Hat Into The Ring
In addition to Nextel's reported loss, Bell Atlantic Mobile [BEL]
(BAM) announced Monday that it is reducing its per-minute rates for
digital wireless phone service in New York and New Jersey by 15
percent, that it is eliminating landline charges and peak/off-peak rate
distinctions, and that it will allow subscribers to choose a reduced
roaming rate plan. The reduction of its rates has been seen by many
within the wireless industry as the first substantial challenge to
Nextel's broad service offering and footprint.
Of particular note is BAM's decision to begin offering unlimited
mobile-to-mobile calls targeted at businesses for just $10-per-month.
However, some analysts have said that Bell Atlantic's aggressive
offering will have little effect on Nextel's subscriber numbers: Nextel
provides a "talk-group" service that allows users from the same network
to be connected at the same time, while Bell Atlantic's service is just
for mobile-to-mobile connections.
Wall Street May Be Patient
"There is clearly an appetite on the part of Wall Street to continue
to finance Nextel. As long as that continues, I think Nextel will
achieve buildout within the prescribed time frames," said Harry Blount
an analyst for CIBC Oppenheimer Inc. "I think that they have a stable
financing position now. The real key is, will the credit market
continue to hold up for the next couple of years to continue to provide
them with cheaper and cheaper access to capital as the business plan
develops."
However, Blount noted that even if the financing window for Nextel
closes, it will have a balance sheet and a growth model that allows it
to support the existing debt and continue on. The main challenge for
Nextel if that happens, he continued, is not to become so heavily
leveraged that the stock price drops substantially, as in the case of
Arch Communications Inc. "I don't see Nextel that leveraged at this
point. I still think they have a fair amount of room to increase their
leverage before they really hurt their stock price," Blount said.
While Nextel's stock has dipped slightly since the announcement,
Freedman said that was primarily due to a scare sparked by an article
in the Wall Street Journal referring to BAM's price slashing. But
Freedman was quick to point out that the other carrier doesn't "fully
match" Nextel's offering.
Despite Nextel's impressive subscriber net adds during 1997, the
company's activities need to be held in perspective, said Eric
Weinstein, an analyst with Donaldson, Lufkin & Jenrette. For all
intents and purposes, Nextel is a "large start-up company," and
registering costs "in the start-up phase," he said. The good news is
that the company is expecting to break even on its domestic operating
cash flow, earnings before interest, taxes, depreciation and
amortization (EBITDA), by the third quarter of 1998, Weinstein said.
Nextel hopes its international operating cash flow will break even by
the fourth quarter of this year.
Nextel Taking iDEN Abroad
Nextel was almost as busy abroad as it was at home, Weinstein said.
"The most compelling part of the story is that [the service] works well
in the U.S., and it works pretty well [abroad] too," he said.
"[Nextel's] international portfolio is quite large. It went from
having 120 million pops to 150 million pops...That is the part of the
story people are not focusing on."
The company also announced a new international investment in Peru.
Subsidiary Nextel International Inc. has purchased a 70 percent
interest in Peru's Valorcom SA, which delivers analog SMR services in
the greater Lima area and holds licenses covering approximately 138
channels, for $27.9 million; plans are to upgrade its system to digital
next year. Through a series of other Latin American transactions
undertaken recently, Nextel International has acquired all of the
equity in SMR operators Mobilcom SA de CV of Mexico and Nextel
Argentina for a total of $178.2 million.
On a related note, Nextel Argentina paid out $12 million to acquire an
additional 60 SMR channels in Buenos Aires made available through a
government auction, giving the subsidiary 12 MHz of spectrum in the
nation's largest market. In addition, Nextel's 77 percent-owned
Brazilian subsidiary has executed an agreement with Telebras SA [TBR]
for the provision of interconnection services in Sao Paulo; the Nextel
subsidiary plans to launch digital SMR service during the first half of
this year. Other digital SMR networks are under development in Rio de
Janeiro, Buenos Aires and Mexico City, Nextel said.
In terms of proportionate ownership interests, Nextel's international
licensed coverage represents more than 400 million people. Its other
interests outside the United States are located in Canada, the
Philippines, and Shanghai, China.
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Copyright Phillips Publishing, Inc.
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