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Technology Stocks : Winstar Comm. (WCII) -- Ignore unavailable to you. Want to Upgrade?

To: Bernard Levy who wrote (11876)	3/27/2000 9:02:00 PM
From: DubM	Read Replies (1) \| Respond to of 12468

Winstar heats up, but where's the fire? By Jeffry Bartash, CBS MarketWatch Last Update: 6:32 PM ET Mar 27, 2000 NewsWatch WASHINGTON (CBS.MW) -- Investors on Monday clamored for shares of Winstar Communications, a local wireless phone carrier, but the news generating the frenzy may not have been so hot after all. Ostensibly, Winstar (WCII: news, msgs) got a big lift from two groundbreaking federal contracts. The deals triggered a 6 1/2, or 11 percent, gain in the price of its stock to 64 7/8. Shares briefly touched an all-time high. Yet the deals themselves won't generate a lot of revenue for Winstar, which begs the question as to why investors were rushing to snap up shares. On Friday, the government awarded Winstar a contract worth up to $100 million to be the sole provider of local data and voice service to federal employees in Cincinnati. And on Monday, the government awarded the carrier half of a $200 million contract to serve Los Angeles. Both deals are for four years, with federal options for another four years. See press release. Even if Winstar received the full amount of revenue, however, that would only mean an additional $25 million in sales each year. That's a pittance now for a company that achieved $445 million in sales in 1999, nearly double the year before. Winstar spokesman Kevin Cavanaugh acknowledged that the revenue from the federal contracts isn't especially large. "The point really is that it's the first time federal contracts have gone to another carrier other than AT&T and the Bells," Cavanaugh said. "I think it says a lot about the company." Indeed, that's true. Companies such as AT&T, MCI, Sprint and the Baby Bells have historically been awarded these lucrative contracts, noted Jeffrey Kagan, an independent telecommunications analyst based in Atlanta. "Now that Winstar has broken the ice, I'd expect to see more of these newer competitors competing for and winning their share of large contracts," he said. Added analyst Ryon Acey, vice president of research at Scott & Stringfellow: "What's more important is what it signals." Still, analysts were quick to urge caution on the part of investors. It's easy to see why. While Winstar won the bid for Cincinnati and a share of the contract for Los Angeles, the federal General Services Administration only has 13 more municipal contracts to award. And the biggest ones, New York, Chicago and now Los Angeles, have already been awarded (The contract for Washington, DC is issued by a separate program). Analysts say company executives have told them Winstar has a good chance at winning part or all of the contracts for Baltimore and Minneapolis. But even if they win those cities, it won't amount to much based on the terms of other municipal contracts. Cavanaugh declined to comment. The symbolism of the deal for Winstar and other independent local phone carriers may also be overblown. Winstar is, in fact, the only independent carrier qualified to compete for the federal contracts. Why is it that other carriers haven't sought or received qualification if the federal contracts were so important, some analysts have asked. Besides, once all the contracts are awarded this year, they won't come up for new bidding until eight years from the time they start. Certainly, getting the stamp of approval from the federal government is a good thing for Winstar, a well respected upstart carrier. The contracts show that the government believes that's the company's wireless network is reliable enough to switch from the Baby Bells, the tried and true incumbents. Yet investors may be playing with matches when they snap the stock up after such announcements.