Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: SteveG who wrote (804)	10/19/1999 9:45:00 AM
From: SteveG	Read Replies (2) \| Respond to of 1860

from Paine Webber's John Hodulik & Soo Kim <<WCIImeetings.doc>> WCII MEETINGS October 19, 1999 KEY POINTS * We continue to believe that the pullback in WinStar shares, caused largely by revisions to year 2000 guidance, is overdone and that the underlying operations of the company have never been stronger. * Remain confident that the company will meet or exceed our third quarter estimates for $112.2 million in revenue and $73.7 million in EBITDA losses. New numbers for 2000 are likely to be overly conservative. * New target customers requiring end-to-end broadband connectivity, potential strategic investors and changes to building access regulation are potential catalysts that we believe could drive the stock in the near-term. * Reiterate Buy rating on WinStar shares believing the dramatic downturn in the stock price has created a buying opportunity. Twelve-month target price of $62 per share provides 61% upside to the recent share price. Management meeting affirms outlook We spent the day with senior management to review recent events and to get an update on initiatives that we believe will help drive the value of the company's shares going forward. Importantly, we were given confidence in the company's ability to execute against its business model given the recent reductions in year 2000 revenue estimates. Based on our conversations, we are convinced that this reduction is not the first of many and that the company is in fact well positioned to beat these lowered estimates going forward. Anecdotal evidence suggests that "Project Bundle," the latest promotion being offered to in-building targeted customers, is getting off to a strong start. The promotion focuses on the sale of high-speed Internet access to small and medium-sized businesses without Internet access and those subsisting on dial-up connectivity. Successful execution of this strategy will improve telco revenue per customer, provide cross-selling opportunities for WinStar's hosting and e-commerce services and a growing customers base for office.com. Emergence of enhanced service providers as new target customers Yesterday, the company signed an agreement with Cignal Global Communications to provide end-to-end business solutions for the company's service. The multi-year $98 million deal is the latest in a string of contracts with enhanced services providers such as AboveNet and Mindspring. Potential customers in this category include voice over IP providers, unified messaging platforms and other Internet related entities. Management expects this new target market, sold through the large accounts organization, will provide a meaningful source of revenue in 2000 and help boost gross margins based on fully on-net status of these contracts. Strategic investors On a number of occasions, questions regarding the importance of private equity investment came up. Looking ahead, WinStar is financed largely through its $2 billion package with Lucent and the $200 million in cash coming from Williams in 2000 as part of its deal to acquire 2% of WinStar's capacity. While financial investors are not currently an appealing option, investments from sources that could provide a strategic benefit to the company may be welcomed. WinStar's initiatives to build broadband end-to-end networks to fulfill the data service needs of small and medium-sized business customers make an investment from a company involved in business applications, desktop computing or the Internet more likely as it could improve the company's competence in key areas. Paul Allen's foray into the MDU market with his investment in RCN highlights the potential value of an urban residential strategy for WinStar considering its ability to reach approximately 10% of the residential market upon completion of its network in 2000. Management indicated that while its infrastructure was well suited to provide similar services, losses associated with this effort ruled out the strategy on a retail basis. However, a wholesale strategy, involving the sale of bandwidth to a third party that develops the product sets and customer retention platforms to serve the MDU market, appears to make sense for WinStar. Building access regulation could provide additional upside to 2000 numbers Management continues to expect to have 8,000 building access rights on its books by year-end 1999. As these buildings typically come online within 12 months of signing the leases, WinStar can be expected to have over 8,000 on-net buildings by year-end 2000. Of critical importance to the long-term growth of the company's CLEC business is its access to building rooftops. The company scored a strategic victory in the latest FCC ruling on unbundled network elements when the network interface device (NID) was classified as an unbundled element. This may help open the door for WinStar and other CLECs to be given access to buildings through the easements currently granted to utilities, enabling them to interconnect at the same point as the current telecom provider in the building. We believe the emergence of Broadband Office, Inc. the Kleiner Perkins-backed group of REITs, as a potential CLEC competitor makes it more likely that the FCC will act to improve competitors' access to buildings. The group has shown that the arguments surrounding building access involve more than just the Constitutional issue of "takings," and may actually involve these owners' ability to make money by restricting competitors' access to buildings in their portfolios. Management believes a favorable resolution of this issue could come in 2000, giving the company the ability to accelerate its business plan. By this time, the WinStar network will be fully deployed in the US, with approximately 270 hub sites in 60 major markets. Recent activities we have witnessed at the company's development lab in Northern Virginia suggest that management is ready to seize upon this opportunity when it presents itself, bringing online a large number of buildings in a very short time using "In-building" DSL and wireless LAN technologies. Summary We believe that the operations of the company have never been better and that the 34% pullback in the shares has created a true buying opportunity for investors. The company is continuing to leverage its fixed wireless capabilities with sales to large customers while only 15-20% of total lines in service will be resold by the end of 2000. Moves by equipment providers such as Nortel, Lucent and Motorola/Cisco combined with the actions of carriers such as Sprint, WorldCom and NEXTLINK attest to the value of spectrum in supporting the broadband needs of end users. Finally, the emergence of the ASP market largely affirms the long-held WinStar strategy of combining broadband access, hosting and applications in a complete package hinging on fixed wireless technology, a complete data service package and office.com. Risks Risks include technological change, unfavorable regulatory rulings, increasing competition from larger carriers, the existence of substantial financial and operating leverage and continued reliance on external sources of capital to fund the company's business plan.