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 : Vodafone-Airtouch (NYSE: VOD) -- Ignore unavailable to you. Want to Upgrade?

To: MrGreenJeans who wrote (2915)	7/25/2000 2:53:26 PM
From: MrGreenJeans	Read Replies (1) \| Respond to of 3175

DAILY BROKER'S REPORT Continental Vodafone impresses Lehman July 25, 2000 By Elliott Gotkine, UK-iNvest.com How times have changed. At the end of April, investors were terrified that the auction for third generation (3G) licences in the UK would set a precedent. They feared that the other 3G auctions would be as costly and take their toll on profits. Mobile phone shares tumbled. Since then, shares in Vodafone AirTouch (VOD) have recovered somewhat (see chart). And while the dust remained settled, it took the opportunity to show City analysts around its Italian mobile operations (Omnitel) and its German subsidiary (D2). Phone away from home Analysts, including Lehman Brothers were broadly encouraged by the trip, which "provided a wealth of information on the operations," according to Lehman's Jo Oliver, "and re-assurance that the integration with Mannesmann is proceeding smoothly." With this in mind, the broker retained its "buy" recommendation with the shares at 307p and maintained its fair value price target at 450p. In Germany, subscriber growth is strong. Penetration recently breached the 40% barrier, against 28% at the start of the year. In total, net additions are running at around 2.25m a month, pointing to a year-end penetration figure of around 58%, largely thanks to higher handset subsidies and more prepaid packages. Originally, Oliver had predicted 55%. The flip side of these gains is that average revenues per user (ARPU) are declining, as are revenues. ARPU has fallen to around €42 a month in the first half of 2000, from some €54 a month for the same period a year earlier. In the short term, this is expected to decline further as the proportion of prepaid customers increases -- they account for 90% of gross new customers. The broker expects ARPU to stabilise at around €35 a month during the next 12-18 months. Short-term pain, long-term gain Oliver is unconcerned, though, both about the fall in margins, and the drop in ARPU: "D2 is investing now to build an extremely valuable asset [i.e. subscriber] base that it will leverage to create value in the months and years ahead." Mobile data revenues came in at €250m in the first half of the year -- some 540m text messages were sent in June. And the broker expects the launch of Global Packet Radio Service (GPRS) services to give a further boost to revenues when they are launched in the second half of the year. In Italy, Omnitel managed to add around 2.1m net subscribers during the first half of 2000, compared with 1.8m a year earlier. Subscriber growth is expected to remain strong for the rest of the year. And though figures have not yet been released, the broker says Omnitel management "hinted" that the figures would not disappoint. Mobile data is likely to figure prominently -- it already accounts for around 8% to 9% of revenues. ARPU has stabilised at around €30-€32 and margins are expected to hit 41%. Sold, for €65bn But it's not all schnapps and spumante. The spectre of expensive 3G auctions remain, particularly Germany's. "Understandably," the broker writes, "D2 was guarded in respect of its comments on the upcoming German 3G licence auction, which is scheduled to commence on July 31." Lehman has factored in a total of €65m of costs for the German auction, against consensus estimates of €45-€50bn. "Recent withdrawals from the process, including WorldCom and Hutchison Whampoa, have led some to conclude that the auction may be considerably less expensive than both our and consensus expectations," it writes. "We are sceptical that this will be the case as we believe the KPN/NTT DoCoMo/Hutchison alliance makes it more likely that we will see increased competition for larger capacity licences." Though the Dutch auction turned out less expensive than previously expected (see Internet news), and the Italian one is expected to cost a paltry €2bn a licence, it is the German auction that concerns the broker most. And until this is sorted, Lehman advises investors to tread warily. For more investment ideas, click here Elliott Gotkine is UK-iNvest.com's deputy stock market editor. The view expressed above is that of the broker and does not necessarily express the opinion of UK-iNvest.com, and nor should it be construed as an invitation to buy or sell shares.