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Technology Stocks : Broadband Wireless Access [WCII, NXLK, WCOM, satellite..] -- Ignore unavailable to you. Want to Upgrade?

To: SteveG who wrote (612)	8/18/1999 9:40:00 AM
From: MangoBoy	Read Replies (2) \| Respond to of 1860

<< With the recent NextLink (NXLK, $103 3/16) purchase of spectrum from SPEEDUS.com (SPDE, $5 9/32) we believe the licenses WinStar was granted could be valued at approximately $200 million. >> Does BofA really want to walk down this path? If these licenses "could be" valued at ~$200M, what "could be" the value of ARTT's total U.S. holdings?

To: SteveG who wrote (612)	8/19/1999 2:42:00 AM
From: SteveG	Read Replies (1) \| Respond to of 1860

Fahnestock INSTITUTIONAL EQUITY RESEARCH RESEARCH BULLETIN EMERGING TELECOM SERVICES August 18, 1999 John L. Bauer III James Lee WinStar Communications, Inc. (OTC-WCII-45 5/8) Additional 18 Licenses Expand Addressable Market; Reit. Buy. Investment Opinion: We are reiterating our BUY rating on WinStar. Our year-end target price of $67 reflects a 30% public market discount to our 1999 net asset value of $96 per share and offers 45%+ upside potential from the current price levels. Key points: · 18 free licenses from the FCC. WinStar yesterday (8/17/99) announced that it has been granted 18 additional licenses in the 38 GHz spectrum by the Federal Communications Commission. The new licenses were obtained at no cost to the company. Many of these newly granted licenses cover a portion of or are adjacent to the top 60 markets in which WinStar is building its local broadband network. Theses licenses include: New York, Minneapolis, Kansas City, San Diego, San Jose, Norfolk, Raleigh-Durham, Omaha, Chattanooga and Tallahassee. · More Spectrum = More Market Coverage. With the additional licenses, WinStar expands its current addressable market by approximately 3 million access lines to 80% (48 million access lines) of the business market from 75% (45 million access lines) before the announcement. The new licenses cover in excess of seven million new channel pops, increasing WinStar's total license coverage to approximately 1.2 billion channel pops. WinStar's footprint now will cover a population of approximately 211 million people. According to CEO William Rouhana, these new licenses will allow the company to expand the availability of its fixed wireless broadband network and provide even more business customers with a wide range of advanced communications services. Based on the recent FCC ruling in the 38 GHz proceeding, WinStar is expecting to receive additional license grants in the future. · No changes yet to our numbers. The “rough cut” of yesterday's announcement runs as follows: WinStar is expected to capture 8.7% of its addressable market by 2009. If we include the additional 5% in addressable access-lines, 2009 addressable access-lines would increased to 74.2 million from 69.6 million. Assuming the company captures an equal share of this new incremental market, the additional revenues and EBITDA from this announcement would produce a target price in the $75 level. At this point we are making no changes to our model or our year-end target price of $67. However, based on the strength of access line additions during the quarter, it is possible (pending further discussions with management) that this target price will be raised. · Valuation is compelling. WCII is currently trading at a steep 52% discount to our 1999 net asset value of $67. Historically discounts of 50% or more for healthy companies are rare, short lived, and represent excellent buying opportunities. As the company continues to successfully execute business plan we expect this discount to shrink to a historically more normal 30% level and fuel a 45%+ increase in the stock. Valuation The mathematics behind our net $96 per share year-end 1999 net asset value estimate for WinStar runs as follows. The net present value of WinStar's free c ash flows (EBITDA minus capital spending) discounted at 14% for ten years approximates $609 million. The net present value of WinStar's liquidation value ten years hence (based on a multiple of 10x cash flow and discounted at 14%) approximates $5.9 billion. The sum of these two estimates ($6.5 billion) reflects WinStar's gross asset value. After subtracting roughly $1.5 billion of net debt, the Company's net asset value approximates $5 billion or $95 per share. These figures are detailed in the box in the lower left hand of our 10-year DCF model accompanying this report. The box in the lower right hand side of our 10-year DCF highlights the sensitivity of our target price to different discount rates and terminal multiples. Although a strong case can be made that our 14% discount rate is too steep and our 10x terminal multiple is too light, these metrics continue to successfully identify undervalued CLEC stocks and as such we think they represent reasonable (and useful) valuation metrics. WinStar's public market discount Charts on page 3 offer a historical perspective of WinStar's public market discount vis-à-vis our historical and current published net asset value estimates. · Top Chart: This chart highlights WinStar's price action from February 1998 to the present. A line representing our historical net asset value estimates for the company has been superimposed on this chart. Over this period our net asset value estimates have increased by a modest 10%, reflecting management's focus on house cleaning (as opposed to growth). With the company now operating on an even keel, we expect our year 2000 net asset value estimate to be significantly higher than our 1999 estimate. · Bottom Chart: The bottom chart tracks WinStar's public market discount i.e., the spread between the company's stock price and our net asset value estimate at any point in time. · History: In February 1998, we established coverage of WinStar with a year-end 1998 net asset value of $87 per share. At the time WinStar's public market discount approximated 55%. Over the following six weeks, the stock was trading between 50% to 70% discount to its NAV. During the August – October “financing scare” (which called into question the industry's ability to finance its build-out plans) WinStar's shares plunged 72% resulting in a public market discount of nearly 85% when the stock bottomed at $13 per share. Since that time, WinStar's public market discount has continued to shrink, reflecting Winstar's improved fundamental outlook. The stock is currently trading at a 52% public market discount which has historically proven to be inexpensive.