Roy and thread,
An ATI update from Prudential:
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EQUITY RESEARCH
AIRTOUCH COMMUNICATIONS
NOVEMBER 6, 1998
ATI: UPDATE FROM THE PRUDENTIAL HI-TECH CONFERENCE
Subject: AirTouch Communications (ATI-56)--NYSE TELECM COM SEO OPINION Current: HOLDAnalysts: Christopher M. Larsen, CFA (212) 778-8420 Prior: Gregory M. Simcik (212) 778-4791
Risk: HIGH
12-month target price $58 ----------------------------------------------------------------Ind. Div.: -- Yield: -- Shares: 592 mil. 52-Wk.Range: 65-27 ----------------------------------------------------------------------EPS/FY Year P/E 1Q 2Q 3Q 4Q Actual 12/97 $0.78 72X 0.13 0.21 0.25 0.19Current 12/98 $1.03E 55X 0.30A 0.25A 0.30A 0.18ECurrent 12/99 $1.32E 43X 0.33E 0.33E 0.35E 0.31E-----------------------------------------------------------------
AirTouch presented at the Prudential Hi-Tech/Telemedia conference yesterday, and we came away with the following information. * Domestic: While churn continues to increase in an increasingly competitive wireless marketplace, AirTouch is looking at several initiatives to reduce churn and improve profitability: more pre-paid/pre-billed services, tri-mode phones to leverage its footprint, consolidating its overhead costs and a continued shift to digital. * International: Despite the economic turmoil going on today, AirTouch's international markets continue to shine. Look for AirTouch to leverage its international holdings onto each other. * We continue to rate AirTouch Hold, at current price levels.
AirTouch's Chief Financial Officer, Mohan Gyani presented at the Prudential Hi-Tech/Telemedia conference yesterday, and we came away with the following information: Domestic update: While the competitive landscape continues to be very aggressive, AirTouch is working to maximize its position. It continues to see churn increasing in its domestic markets (churn can have a significant impact on a carrier's profitability). AirTouch continues to work to drive costs out of its structure, and according to CFO Gyani, the company will not be adding any headcount to its headquarters. It also plans to integrate its 3 in-house billing systems over the next 2 years, giving it increased flexibility and lower operating costs.AirTouch intends to get more aggressive on its pre-paid alternatives, including making the value proposition more compelling for subscribers and doing things like pre-billed wireless for subscribers that wish to pay in advance.AirTouch believes it will have a tri-mode CDMA phone that will allow it to leverage its footprint better. These phones, expected to be available 4Q99/1Q00, would know which is the preferred carrier in each market, so that a PrimeCo subscriber roaming on an AirTouch network would automatically use the AirTouch network in that market.AirTouch's digital cellular footprint now covers 70% of its POPs, with 32% of its peak usage digital and 10% of its subscribers digital. Digital handset prices continue to come down for CDMA, and now "low-end" phones are below $300 (this does not, however, compare favorably to other digital standards with low-end handset prices below $150, but is in the right direction). International update: International had its best quarter ever in 3Q98. The trend of continued strong subscriber growth and other subscriber metrics (ARPU, profitability, etc) come in the face of economic turmoil in several of AirTouch's markets (most notably Japan and South Korea). We believe this is a good sign, given the global economic uncertainty and its potential impact on wireless companies.Look for AirTouch to lever its international holdings more in the future, with more favorable international roaming agreements, and utilizing an AirTouch network wherever that subscriber is (this is more the case in AirTouch's European markets). Please call for a copy of AirTouch's presentation. At Current Levels, AirTouch Is Fully Valued, In Our Opinion. We have a 12-month price objective, based on our five-year discounted cash flow analysis, of $58/share. We continue to rate AirTouch hold. However, given further weakness in the stock, we would be forced to re-evaluate our rating. Risks Include Currency And Sovereign Risks. AirTouch is largely a cash flow story, just beginning to report meaningful earnings. The competitive environment for AirTouch's domestic operations is changing as new competitors (PCS/ESMR) enter the market. Its PCS PrimeCo subsidiary is likely to require significant capital for start-up operations. AirTouch's large international portfolio brings several risks, including currency risks and foreign sovereign risks. AirTouch Communications, based in San Francisco, California, is the nation's largest independent wireless communications company (based on market cap), offering cellular, PCS, paging, and in the future global satellite service. The company has U.S. cellular licenses covering 85 million proportionate people (POPs), PCS licenses covering 30 million proportionate POPs, a nationwide paging operation, and international properties covering a proportionate 122 million POPs in Germany, Portugal, Sweden, Belgium, Italy, Spain, Poland, Romania, Japan, South Korea, and India.
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