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Technology Stocks : AWE - ATT Wireless -- Ignore unavailable to you. Want to Upgrade?

To: JohnG who wrote (198)	6/23/2000 7:44:00 AM
From: JohnG	Read Replies (1) \| Respond to of 329

AWE unable to compete w/ Verizon except on price. JohnG TMF Interview With Verizon Wireless Vice President and Chief Financial Officer Ted Langston With Richard McCaffery (TMF Gibson) June 22, 2000 What a difference a year makes. Last year Bell Atlantic (NYSE: BEL) had a fast-growing but local wireless phone business. Without a national footprint, the company couldn't expect to seriously challenge wireless companies such as Sprint (NYSE: FON) and AT&T (NYSE: T) , which were rapidly building out nationwide digital networks. Enter Vodafone AirTouch (NYSE: VOD) , which combined its U.S. wireless assets with those of Bell Atlantic and GTE (NYSE: GTE) last fall. Presto: Verizon Wireless. The company is the biggest U.S. wireless carrier with about 24 million customers, has a nationwide CDMA network, and a partner in Vodafone that rules the European wireless industry. Verizon Wireless hopes to go public late this year. We talked with Verizon Wireless Vice President and Chief Financial Officer Ted Langston about the company's competitive advantages, plans for the roll out of 3G (high-speed data) services, and major integration challenges. TMF: There are now six wireless carriers with a national footprint. What competitive advantage does Verizon have? Langston: Our advantage is our network. We cover 232 million points of presence (potential customers) and about 75% of our network is digital. The advantage is that our customers can roam on our network wherever they go. You can't do that with a lot of our competitors. There are no hidden roaming charges with our single rate plan. TMF: Like the other wireless companies, you still have gaps in your coverage. Where are they and what are you doing about it? Langston: We are covered on analog and are completing roaming agreements on the digital network. There are one or two small gaps and we have made some recent acquisitions. To put it in perspective, we're in 96 of the top 100 markets. We're virtually covered and have favorable roaming contracts in the other areas. TMF: Verizon plans to spend more than $3 billion building out its network this year. Talk about the infrastructure improvements and how they will improve the system. Langston: We're migrating the network to digital. As I said earlier, about 75% of it has been converted and by the end of the year it will be over 80%. The advantage is the capacity benefit we get out of it. The CDMA network we deployed has between six and ten times the capacity of a traditional analog network. If you compare it with TDMA, it has about three times the capacity. It's cost beneficial to us to transfer our customers to the digital network and that's why we're investing heavily to deploy it. TMF: How long before the system is fully digital? Langston: By 2003 we will have virtually 100% digital coverage. TMF: One of the key challenges will be knitting together Verizon's composite systems. Can you address those challenges? Langston: We have 14 major billing systems as well as three or four minor ones. Over the next two years we have to consolidate that down to four. Clearly this will help develop synergies. TMF: What kinds of products will Verizon roll out in the coming months to distinguish its services? Langston: With our network we have a window of opportunity to really grow our services. That's what we're focusing on. Shortly, we'll be introducing the first nationwide, digital, prepaid product. It should be rolled out in the third quarter. Also, we'll be the first nationwide operator to offer two-way short messaging services, which will be available in the third quarter. Just to give you an idea, Vodafone has 300 million messages sent across its network every month. That's what customers want. Finally, in the next few weeks we'll be launching our wireless portal. We've got over 1,000 content providers, and we see it as a real opportunity for us and benefit for customers. TMF: How many customers do you have at this point? Langston: We'll have about 25 million customers once the GTE deal is completed around June. TMF: How quickly can you grow subscribers? Langston: We see the subscriber base growing 15% this year. It could be higher. It could change considering the products we'll be offering. TMF: Telecom investors pay attention to average revenues per unit (ARPU) and churn rates. Can you give us an idea where Verizon stands? (The churn rate refers to the percentage of customers that cancel service.) Langston: In terms of revenues per customers, all the operators have seen them declining over the last two years. Over the last few months, however, things leveled out and are now increasing for us. As we roll out our digital network and SMS products, we think it will sustain revenue growth. The conversion to digital is a revenue driver as well. About 40% of our customers are on the digital network and their ARPUs are a lot higher than analog users. TMF: What are Verizon's ARPUs? Langston: I can't disclose last quarter's numbers but $49 is pretty close. TMF: And churn rates? Langston: Churn is about 2%. TMF: That's well below the industry average. Langston: We have predominantly contract customers. TMF: Could you explain that? Langston: It's a philosophy that came from the old Bell Atlantic Mobile operation. A lot of their customers were signed up in their own shops. About 60% of their customers came from this direct sales channel, and what we found is that those customers are more loyal and have a higher ARPU. TMF: Is the number of shops growing? Langston: When the GTE deal closes at the end of the month we'll have about 1,200 stores. We should be rapidly expanding that. Bell Atlantic was one of the largest retailers in the country. TMF: When will you be rolling out 2.5G and 3G technology? Langston: We're trialing 3G in the field right now. We expect that it will go into commercial use in the middle of 2001. The benefits come especially on the data side. Our current technology transmits data at 14.4 Kbps and that jumps to 144 Kbps with 3G. TMF: There are more numbers and ratios in the telecom world than investors know what to do with. What measurements are the most important? Langston: Subscriber growth is important. We have a very big base and expect to grow at 15% annually. Also revenue and cash flow (earnings before interest, taxes, depreciation, and amortization). Finally, we want to see margins in the 40% range. We'll closely manage our business to maintain those kind of margins. TMF: What kind of revenue growth do you expect over the next three to five years? Langston: About 15% annually. TMF: Thanks for your time. Langston: Thank you.