BT Alex Brown - Bo Fifer
WINSTAR COMMUNICATIONS INC. (WCII) "STRONG BUY"
Forms Joint Venture To Offer Wireless Fiber Services In Japan
HIGHLIGHTS
-- In keeping with a promise made at an investor meeting in December,
WinStar has joined with an established long haul carrier to offer broadband wireless data services in Japan, the company announced Tuesday (5-Jan).
- PARTNERS: WinStar has formed a joint venture with KDD, Japan's largest international telephony provider, and investment firm Sumitomo Corp. The venture, dubbed KDD WinStar, will be owned 55% by KDD, 35% by WinStar, and 10% by Sumitomo. WinStar's initial investment amounts to approximately $3.1 million (350 million yen).
- POSITIVE NEW NEWS: According to WinStar, rates for T1 lines are around $2400/month compared with just $600-$700/month in the U.S. KDD WinStar plans to begin offering service in 5 top-40 Japanese markets in 2Q 1999, including the two largest (Tokyo and Osaka). As WinStar had earlier indicated, the initial service will be packet-based data networking and Internet access as opposed to circuit switch voice services, which should allow WinStar to build out a lower cost network with lower initial operating losses.
- OTHER INTERNATIONAL VENTURES: WinStar has focused on three major
international areas: Europe, Asia/Pacific, and Latin America.
EUROPE: Expects to "fly solo" in Europe with Lucent in the background. Netherlands launch scheduled for 1Q 1999. Filed for licenses in 7 markets in Germany. Plans to file in France, Belgium, and U.K. in 1Q 1999.
ASIA/PACIFIC: Expects to establish JVs to facilitate buildout. JV announced today in Japan with 2Q 1999 expected launch. In talks to form JV in Australia to participate in Feb-99 auctions.
LATIN AMERICA: Signed LOI to acquire 38 GHz spectrum in Argentina. Deal could close in January, with operations commencing in late 1Q 1999.
- NET-NET: Today's announcement marks WinStar's first entry into international markets. We expect WinStar to begin operations in 6
international markets by YE 1999, on its way to 50 markets within 5 years.
Coupled with the 60+ markets contemplated in the U.S., WinStar's presence would extend to 110 of the largest telecom markets in the world. Could the next deal be for undersea dark fiber?
- VALUATION: Based on our 10-year DCF, using a 20% equity discount rate and a 10x terminating multiple, our 12-month price target for WCII is $51/share. Our model is currently under review to incorporate the effects of the expanded market rollout schedule and the recently signed deal with of the expanded market rollout schedule and the recently signed deal with Williams Communications for domestic long haul fiber.
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