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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (33856)	9/30/2000 1:16:20 PM
From: IQBAL LATIF	Respond to of 50167

Searching within the ashes... You Should Pick Ubiquitel By David H.M. Baker Columnist 09/28/2000 1:37 PM Click here for printer-friendly version E-mail this article to a friend It's time to start looking for bargains in the hard-hit telecom sector. One of my favorites is a Sprint PCS (PCS: NYSE) affiliate Ubiquitel (UPCS: Nasdaq). Several factors have cast a pall over telecom, competition, financing requirements, strength of management, network build out and valuation. Ubiquitel has addressed each of these issues and its recent slide in value is primarily related to rotation out of sector. Also, investors have penalized Ubiquitel because its footprint is in more remote areas of the country and because its build out is behind peers, but I think the company is not as disadvantaged as many may believe. Affiliate Membership Sprint PCS has established 18 regional affiliates, to which it has granted a spectrum license in return for 8% of affiliate revenue. In return, affiliates get to leverage the Sprint PCS back office, brand and marketing, but affiliates are responsible for building out a regional wireless network. This is a great deal for all parties as it accelerates the build out of the Sprint PCS footprint and affiliates get the opportunity to utilize the established national platform. Eventually Sprint PCS will most likely roll back these affiliates under the corporate umbrella, likely at a much higher value. Ubiquitel is one of the four publicly traded Sprint PCS affiliates that also includes Alamosa PCS (APCS: Nasdaq), Airgate PCS (PCSA: Nasdaq) and US Unwired (UNWR: Nasdaq). Ubiquitel's footprint covers parts of the North and Midwestern US covering 7.7 million points of presence (POPs). The company is in the process of constructing its network -- the least built out of the publicly traded group. Getting In Deep I have spoken to a number of analysts who admittedly missed the opportunity in the European wireless segment. They didn't focus on the fact that when wireless penetration reaches the 40% level, cash flow accelerates dramatically. Interestingly enough, the US penetration in 1999 was 32% and it is expected to eclipse 40% this year -- reaching 80% by 2009. So the US market is just now reaching the "tip over" point for cash flow growth, which should bring forward-looking investors back to the sector over next six to 12 months. The take-up in usage is still very strong in a voice-centric environment, as market is expected to grow 22% in 2000 to 105 million subscribers on the heels of 25% growth in 1999. This growth, while strong, is still lagging much of Western Europe and Asia, and the number of global wireless subscribers is expected to triple to 1 billion by 2002. Think of a world where most every person has a handheld PDA, mobile wireless-data device and or phone. Just as in the terrestrial land-based networks, data volume is the Holy Grail and will dramatically usurp voice as the primary traffic on the networks. In this model, users are charged on data volume or bandwidth usage, which is a very attractive model to the service providers. Less Crowd, More POP Ubiquitel is unique in the respect that it is playing in some of the least crowded markets in the US. In 75% of Ubiquitel POPs, there were three or fewer competitors, while many of its peers are facing six or more other market players. Further, wireless penetration in its markets was 10% below the national average in 1999, which should bode well on a going-forward basis. Ubiquitel expects to have positive earnings before interest, taxes, depreciation and amortization (EBITDA) in 2003. The company has an $80 million cushion built into its model. The company's network will be mostly completed by year-end 2001 covering 4.2 million POPs, or 55% of the population in its region. Management led by Don Harris -- who successfully built Comcast's (CMCSK: Nasdaq) wireless unit -- has considerable depth and direct industry experience. Demographic Reach The relative valuation of Ubiquitel to peers makes it a compelling story. Ubiquitel has the lowest value of $58 per POP, versus $109 for Alamosa, $74 at Airgate, $64 for US Unwired and considerably below AT&T Wireless (AWE: NYSE) affiliates Telecorp (TLCP: Nasdaq), valued at $133 per POP, and Triton PCS (TPCS: Nasdaq), valued at $155 per POP. The company's POPs have strong demographics and population growth that is 60% above the national average. Ubiquitel expects to benefit from significant roaming traffic as its regions include the highly trafficked southwestern Indiana/Kentucky cluster and vacation destinations of northern California and Nevada that includes one of the most attractive US markets in the Lake Tahoe/Reno area. Now the risk here is short-term, in the respect that any investment is dead money. Investors must have a three-to five-year time horizon when playing in this sector and understand that rarely can one catch a bottom. However, the wireless sector represents one of the most rapidly expanding investment opportunities of the decade and holders of Ubiquitel should directly benefit from these trends and generate above-average returns. David H.M. Baker CFA is an analyst for worldlyinvestor.com and president of Rivendell Capital Management, a private-client money management firm, and a partner in Vision Investors LP, a Boston-based hedge fund. His column covers stocks that he feels are undervalued relative to their peers. Clients of Rivendell Capital Management own shares in Ubiquitel and Alamosa. Positions can change at any time.