1Q 1999 CELLULAR VALUE METRICS PREVIEW
Bankers Trust Research/BT Alex. Brown Research
Jeffrey Hines,Bo Fifer
April 12, 1999
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AIRTOUCH COMMUNICATIONS INC. [ATI] "MKT. PERFORM"
BCE MOBILE COMMUNICATIONS INC. [BCX] "MKT. PERFORM"
PRICE COMMUNICATIONS CORP. [PR] "STRONG BUY"
ROGERS CANTEL MOBILE [RCN] "BUY"
U.S. CELLULAR CORPORATION [USM] "BUY"
VODAFONE [VOD] "BUY"
WESTERN WIRELESS CORPORATION [WWCA] "STRONG BUY"
1Q 1999 Cellular Value Metrics Preview
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52-WK Earnings Per Share
FY Price Price 3-5 Yr
Est.
Ticker End 04/09/1999 Range 1998 1999 2000 Growth
Chg?
ATI 12 100.25 101-42 1.10A 1.30P 2.01P
Y
BCX 12 29.13 32-21 0.00A 0.22 0.59
N
PR 12 14.25 14-4 (1.46)A (1.55) (1.15)
N
RCN 12 19.56 20-7 (0.85)A (0.53) (0.13)
N
USM 12 46.00 46-28 1.02A 1.29 1.78 25%
N
VOD 03 196.13 198-94 2.23A 3.01 (0.42) 20%
N
WWCA 12 41.50 43-14 (2.95)A (3.40) (2.34)
N
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HIGHLIGHTS:
-- With 1Q 1999 "earnings" season upon us, we've listed below detailed
tables containing our expectations for five key metrics we consider in
determining value creation for our cellular universe:
1. Penetration gain (growth)
2. Churn (disconnect rate)
3. Average revenue per unit (ARPU).
4. Cost of acquisition (COA)
5. Pre-marketing cash flow (PMCF).
-- CELLULAR STOCK PERFORMANCE HAS BEEN SOLID: LTM, our Cellular Index is up
69%, ahead of the S&P500 (up 21%). YTD, our Cellular Index is up 24%,
ahead of the S&P500 (up 9%).
-- 4Q 1998 RESULTS REVIEWED: While one quarter does not a trend make, based
on our five "value metrics", the rankings (best to worst) for 4Q 1998 value
creation were as follows: 1) Price Communications, 2) U.S. Cellular , 3)-
tie Western Wireless, 3)-tie Alltel, 5) BCE Mobile, 5) AirTouch, 6) Rogers
Cantel.
-- 1Q 1999 EXPECTATIONS DETAILED BELOW. As will be shown, WE EXPECT THAT
PRICE COMMUNICATIONS, WESTERN WIRELESS / ALLTEL (tie) will report the,
relatively speaking, top three results in terms of the 5 value metrics
described above.
DETAILS:
With 1Q 1999 "earnings" season upon us, below we've listed detailed tables
containing our expectations for five key metrics we consider in determining
value creation for our cellular universe:
-- INCREMENTAL PENETRATION GAIN (subscriber growth): Measures the Company's
success in penetrating the market. Annualized, this number is simply
calculated as follows: 4 x (Net Subscriber Additions) / (Total POPs). We
use total gross POPs, not currently built-out or covered POPs.
-- CHURN (disconnects): Churn, or the disconnect rate, is inversely related
to the average subscriber life, which is the period of time over which a
carrier expects to receive monthly ARPU. We use "fully-loaded" churn
values (either actual or estimated), i.e., inclusive of returns within any
applicable guarantee period.
-- AVERAGE REVENUE PER UNIT (ARPU): Measures the gross service revenues
generated per average subscriber, usually expressed per month.
-- COST OF ACQUISITION (COA): The sum of selling costs per gross addition
and the net subsidy applied to the handset by the carrier. These are cash
costs of adding an incremental subscriber.
-- PRE-MARKETING CASH FLOW PER UNIT (PMCF): Measures the ARPU less cost of
service and G&A expenses per average subscriber, expressed per month.
Below, we lay out our expectations for 1Q 1999 operational performance
among the seven major public North American cellular carriers in our
universe relative to these five "value metrics".
NET ADDITIONS/PENETRATION GAIN
NET ADDITIONS Est Est Est Est
1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99
AirTouch 0.171 0.256 0.201 0.454 0.225 0.200 0.200 0.350
Alltel 0.097 0.123 0.100 0.146 0.090 0.100 0.090 0.125
BCE Mobile 0.020 0.047 0.059 0.128 0.080 0.070 0.065 0.100
Price Comm. 0.017 0.020 0.017 0.018 0.018 0.018 0.018 0.020
Rogers 0.012 0.026 0.044 0.103 0.055 0.060 0.065 0.120
US Cellular 0.107 0.101 0.096 0.150 0.105 0.095 0.085 0.125
West. Wire. 0.027 0.037 0.032 0.040 0.032 0.033 0.032 0.044
Total 0.452 0.611 0.548 1.039 0.605 0.575 0.555 0.884
Source: Company documents, BT Alex. Brown Incorporated.
PENETRATION GAIN Est Est Est Est
1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99
AirTouch 1.58% 2.32% 1.23% 2.69% 1.33% 1.18% 1.18% 2.06%
Alltel 1.18% 1.48% 1.19% 1.74% 1.07% 1.19% 1.02% 1.41%
BCE Mobile 0.47% 1.10% 1.35% 2.95% 1.84% 1.61% 1.49% 2.29%
Price Comm. 2.13% 2.53% 2.11% 2.19% 2.15% 2.15% 2.14% 2.44%
Rogers 0.16% 0.34% 0.57% 1.34% 0.71% 0.77% 0.84% 1.54%
US Cellular 1.78% 1.68% 1.59% 2.49% 1.70% 1.54% 1.38% 2.02%
Western Wireless 1.46% 1.98% 1.69% 2.12% 1.69% 1.67% 1.48% 2.00%
Average 1.25% 1.63% 1.39% 2.22% 1.50% 1.44% 1.36% 1.97%
Source: Company documents, BT Alex. Brown Incorporated.
MONTHLY AVERAGE REVENUE PER UNIT (ARPU)
AVG. REVENUE PER UNIT (ARPU) Est Est Est Est
1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99
AirTouch $46.68 $44.82 $44.38 $42.23 $43.00 $42.58 $42.16 $40.12
Alltel $43.49 $47.30 $47.06 $45.93 $43.50 $46.50 $46.00 $44.75
BCE Mobile $42.03 $41.42 $40.54 $35.76 $37.76 $37.11 $36.46 $35.81
Price Comm. $42.62 $45.25 $45.47 $44.42 $40.49 $42.99 $43.20 $42.20
Rogers $37.52 $38.04 $36.12 $34.06 $32.14 $33.69 $33.20 $31.50
US Cellular $44.67 $50.09 $51.42 $47.97 $42.44 $47.59 $48.85 $45.57
West. Wire. $54.10 $55.39 $58.64 $57.43 $51.64 $52.62 $55.70 $54.56
Average $44.45 $46.04 $46.23 $43.97 $41.57 $43.30 $43.65 $42.07
Source: Company documents, BT Alex. Brown Incorporated.
PRE-MARKETING CASH FLOW PER SUBSCRIBER
PRE-MARKETING CF (PMCF) Est Est Est Est
1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99
AirTouch $39.24 $45.12 $36.70 $34.73 $35.36 $34.99 $34.61 $32.78
Alltel $26.34 $29.13 $29.45 $28.75 $26.50 $29.77 $29.46 $28.46
BCE Mobile $22.91 $22.80 $22.42 $18.98 $19.16 $19.41 $18.90 $17.81
Price Comm. $27.48 $29.76 $27.96 $25.74 $25.83 $27.88 $28.12 $24.62
Rogers $24.46 $26.68 $24.88 $23.56 $22.21 $23.65 $23.26 $21.82
US Cellular $26.53 $29.08 $30.94 $28.69 $23.92 $28.40 $29.55 $27.04
West. Wire. $34.82 $35.19 $39.03 $37.23 $32.97 $33.87 $36.92 $36.17
Average $28.83 $31.11 $30.20 $28.24 $26.56 $28.28 $28.69 $26.96
Source: Company documents, BT Alex. Brown Incorporated.
MONTHLY DISCONNECT RATE (CHURN)
CHURN Est Est Est Est
1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99
AirTouch 2.0% 2.0% 2.1% 2.5% 2.6% 2.5% 2.4% 2.3%
Alltel 2.1% 1.9% 2.2% 2.3% 2.0% 2.0% 2.0% 2.0%
BCE Mobile 1.4% 1.4% 1.4% 1.4% 1.6% 1.7% 1.8% 2.0%
Price Comm. 1.8% 1.9% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Rogers 1.8% 1.9% 1.8% 2.1% 2.1% 2.1% 2.1% 2.1%
US Cellular 1.7% 1.8% 1.8% 2.1% 2.1% 2.1% 2.1% 2.1%
West. Wire. 2.5% 2.3% 2.3% 2.5% 2.3% 2.3% 2.3% 2.3%
Average 1.9% 1.9% 1.9% 2.1% 2.1% 2.1% 2.1% 2.1%
Source: Company documents, BT Alex. Brown Incorporated.
COST OF ACQUISITION
COST OF ACQUISITION (COA) Est Est Est Est
1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99
AirTouch $492 $491 $486 $438 $505 $487 $469 $428
Alltel $295 $311 $254 $263 $275 $275 $275 $320
BCE Mobile $563 $518 $438 $323 $423 $380 $386 $358
Price Comm. $223 $220 $197 $170 $205 $220 $235 $250
Rogers $572 $496 $382 $302 $358 $326 $293 $260
US Cellular $314 $304 $337 $308 $325 $325 $325 $275
West. Wire. $331 $317 $347 $330 $325 $325 $325 $300
Average $399 $380 $349 $305 $345 $334 $330 $313
Source: Company documents, BT Alex. Brown Incorporated.
SUMMARY VALUE
For COMPARISON only, we have rolled four of the five metrics into a single
subscriber value statistic (the statistic ignores growth). We calculate
this value by taking the present value of the pre-marketing cash flow over
1/churn months, discounted at 15% per year, and net of up-front acquisition
costs. While the results are not useful in predicting future value
creation, they do provide a useful tool for comparing company performances
(we've also shown the same calculation using average revenue per unit in
place of pre-marketing cash flow).
1Q 1999 SUB VALUE
Pen. ARPU PMCF
Gain ARPU Churn COA PMCF NPV NPV
AirTouch 1.33% $43.00 2.6% $505 $35.36 $802 $570
Alltel 1.07% $43.50 2.0% $275 $26.50 $1,335 $706
BCE Mobile 1.84% $37.76 1.6% $423 $19.16 $1,208 $404
Price Comm. 2.15% $40.49 2.0% $205 $25.83 $1,299 $754
Rogers 0.71% $32.14 2.1% $358 $22.21 $810 $449
US Cellular 1.70% $42.44 2.1% $325 $23.92 $1,191 $529
Western Wireless 1.69% $51.64 2.3% $325 $32.97 $1,399 $776
Note: All companies on a US$-basis.
Source: Company documents, BT Alex. Brown Incorporated.
IN TOTAL, THE 5-METRICS POINT TO PRICE COMMUNICATIONS, ALLTEL / WESTERN
WIRELESS (TIE) AS THE THREE ARE EXPECTED TO LEAD THE PACK IN TERMS OF VALUE
CREATION IN 1Q 1999
While one quarter's performance cannot be considered a trend or predictive
of future results, below we've ranked OUR EXPECTATIONS for each carrier,
from 1 (best) to 7 (worst) in each of the five value metrics and summed the
results to determine which carriers were adding the most "value" to their
shareholders. As in golf, low score wins:
1Q 1999 Cellular Penet.
Metric Rankings Gain ARPU Churn PMCF COA Total
Price Comm. 1 5 2 4 1 13
Alltel 6 2 3 3 2 16 (tie)
Western Wireless 4 1 6 2 3 16 (tie)
US Cellular 3 4 5 5 3 20
BCE Mobile 2 6 1 7 6 22
AirTouch 5 3 7 1 7 23
Rogers 7 7 4 6 5 29
* On a $US basis. |
