<<Analyst in demand
Christopher M. Larsen, Prudential Securities
by Peter Nelson
January 24, 2000
Christopher M. Larsen covers the telecommunications and telecom services industries for Prudential Securities. Larsen gives the wireless telecommunications industry a STRONG BUY rating overall. He says that the heavy price competition defining the market in the last quarter implies strong user demand, which in turn presents a good opportunity for investors to buy.
Companies mentioned in this article
Vodafone AirTouch (VOD)
AT&T (T)
VoiceStream (VSTR)
Bell Atlantic (BEL)
Nextel (NXTL)
Omnipoint (OMPT)
SBC Comm./PacBell (SBC)
Western Wireless (WWCA)
Nextlink Comm. (NXLK)
Teligent (TGNT)
ICG Comm. (ICGX)
Intermedia Comm. (ICIX)
MGC Comm. (MPWR)
RCN Corp. (RCNC)
Lucent (LU)
Larson's December 21 wireless communications industry update is counted among Multex Investor's most popular research reports. The report includes results from Prudential Securities' rate survey for digital wireless service. The survey examines pricing for different types of providers at four levels of use per month: 60, 120, 300, and 1,000 minutes. Larsen draws comparisons with the results from similar surveys taken over the past year.
The buck stops at 300
According to Larsen, the survey shows that 300 minutes of use (MOU) is the "sweet spot" at which wireless carriers compete hardest. This marks a shift of emphasis on the user side, as the fiercest price competition had previously occurred at 1,000 MOU.
Overall, "the competition is in line with what [Prudential Securities] expected," Larsen says, "and a likely indication of solid demand for fourth quarter 1999 subscriber adds."
Though the average rate of decline has slowed in all surveyed markets, decreases continue to prevail. At the low end, only one of the markets saw a price increase, and Vodafone AirTouch (VOD) offered a new low, far below its competitors. The trends tracked similarly in most groups, with the most movement in the 300 MOU range, where every market now has a ten-cent per minute plan.
The leaders and innovators
Larsen offers a STRONG BUY rating of the wireless telecom industry and singles out a few of the more innovative new offerings, including AT&T Wireless's Digital One Rate and Sprint PCS's wireless web service.
The wireless service providers that offer the most attractive investment opportunities, according to Larson, include AT&T (T), rated STRONG BUY/Select, and VoiceStream (VSTR), rated STRONG BUY/Single Best Idea. Bell Atlantic (BEL), Nextel (NXTL), Omnipoint (OMPT), SBC Comm./PacBell (SBC), and Western Wireless (WWCA) all receive a STRONG BUY rating from either Larsen or telecommunications analyst Guy Woodlief.
CLECs away
Reports mentioned
Wireless communications industry update 12/21/99 Prudential Securities($150)
Report on CLECs 1/3/00 Prudential Securities ($300)
Sponsored report on CLECs 1/7/00 Prudential Securities ($free)
Christopher Larsen's coverage of the telecommunications sector ranges beyond the wireless industry, as hismost recent work on competitive local exchange carriers (CLECs) highlights. In a January 3 report , Larsen initiates coverage with a STRONG BUY rating on the industry overall.
The analyst says that he is "bullish on the near- and long-term prospects for the competitive local exchange carrier (CLEC) industry." Not only are these companies vying for a piece of the telecom market, but they have begun to participate actively in the integration of data and Internet capabilities into telecommunications.
The market for local carriers is tremendous, according to Larsen, with a potential $240 billion to be grabbed. In addition, the telecom market is expected to grow to $750 billion by 2008, with significant boosts from the more dynamic data and Internet elements. With data as the "key growth driver," CLECs should be able to capitalize on the market's growth.
The kings of the hill
Nextlink Comm. (NXLK) and Teligent (TGNT) are Larsen's top picks in the industry, and both are rated STRONG BUY. Buoyed by strong management teams, fixed wireless assets, and end-to-end network strategies, both Nextlink and Teligent have emerged as early leaders in the young market.
But while Nextlink and Teligent are leading, the pack is in hot pursuit. Larsen issues STRONG BUY ratings on four other companies: ICG Communications (ICGX), Intermedia Communications (ICIX), MGC Communications (MPWR), and RCN Corp. (RCNC).
Larsen warns, however, that the CLEC industry is a start-up industry, and investments are high-risk. Says the analyst: "The companies face numerous operating and regulatory risks, both from within the company and from external sources." Because of the potential risks involved, he recommends carriers with the strongest management.
Measuring the setbacks
On January 6, Lucent (LU) made a comment in its earnings pre-announcement about the inability of some of its CLEC customers to pay for equipment orders. Larsen issued a report on January 7 responding to this comment. He says "the publicly traded CLECs in general, and the CLECs we cover in particular, have been successfully securing financing lately."
Larsen maintains his ratings on all CLECs in his coverage universe, and asserts that any weakness in the price of these companies as a result of Lucent's comments should be looked upon as a buying opportunity.
>> |
