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Technology Stocks : IDT *(idtc) following this new issue?* -- Ignore unavailable to you. Want to Upgrade?

To: Hawaii60 who wrote (22005)	10/3/2000 10:38:05 AM
From: Art Baeckel	Respond to of 30916

Facing Tougher Competition and Slowing Growth in Wireless Aram Fuchs Since my original article on SPRINT PCS (PCS), (The Sell Report, The Telecomm Analyst, April 18, 2000), when the stock was at $53.38, the shares have fallen 35% to close at $34.50 on Sept. 28. SPRINT PCS is the tracking stock that represents the wireless operations of SPRINT (FON). Most of that decline has occurred in the last month when SPRINT (FON) management revealed in a press release that " … PCS Group currently expects third quarter customer churn will be in the high 2% to 3% range, which would be a sequential increase. This is principally due to a higher level of company-initiated deactivations. As a result of the higher deactivations and partially due to increased competition, PCS Group expects to report net direct customer additions of around 800,000 in the third quarter. This is below previously expected levels." So why has SPRINT PCS reported disappointing subscriber growth? It's pretty simple, really. For a couple of years, SPRINT PCS had a great lead over its competition. It was able to offer nationwide plans without roaming charges, because it was the only other nationwide operation besides AT&T WIRELESS (AWE). But its competitors realized their disadvantage and reacted. 1.Bell Atlantic, now VERIZON (VZ) has combined its wireless operations with those of VODAFONE AIRTOUCH (VOD). Verizon Wireless, the joint venture, has a nationwide reach and its parents plan an initial public offering for part of the company. 2.VOICESTREAM (VSTR) consolidated the GSM (global system for mobile communications, the European wireless protocol) operators Aerial and Omnipoint. The company has agreed to be acquired by DEUTSCHE TELEKOM (DT), which also plans to acquire POWERTEL (PTEL), another GSM company that is strong in the southeastern United State. VOICESTREAM has lowered its pricing for its nationwide plans to compete with SPRINT PCS. 3.SBC COMMUNICATIONS (SBC) and BELLSOUTH (BLS), which are in the process of combining their wireless operations into a joint venture that also plans an IPO, have lowered their prices for their nationwide plans. Meanwhile, the Cellular Telecommunications Industry Association said that in 1999 there were more than 86 million wireless subscribers in the U.S., which has a population of about 250 million. This means that in the bulls' best-case scenario, if every man, woman and child in every single economic class had a cell phone, the market could go up 200%, at most, in the long term. But, at the same time, the competition has gone up by 300%. Think about it for a second. Imagine your neighborhood grocer and another local entrepreneur hold a duopoly on a certain product in your town. Then, all of a sudden three other grocers start selling the same product for the same price or less. Then, imagine that the growth rate in the overall market for the product is slowly declining. Your local grocer's sales of that product will eventually decline, forcing the grocery to look for a new product to sell to its customers. Now apply that scenario to SPRINT PCS. Wireless growth is slowing, and at the same time competition is intensifying. The new product? Wireless Web. SPRINT PCS has announced that it has recently signed wireless Web content deals with TICKETMASTER ONLINE-CITYSEARCH (TMCS) for entertainment information, Edmunds.com for car-pricing information, Encyclopedia Britannica for its new product, Wireless Britannica, and Bolt for content for teenagers. There is no question that wireless Internet products have great potential for SPRINT PCS. It is a great way to gain incremental revenue with very few incremental costs, while providing an innovative product to your customers. But we do not have enough empirical data to prove that it will generate enough revenue to compensate for the lost subscriber revenue from the increased competition. So the question is: Would I buy SPRINT PCS now that the price is down sharply from its level at the time of my first Sell Report? I would need to see some of the results from the company's wireless Web initiatives. If those aren't wildly successful, I wouldn't touch the stock. Lehman Brothers, on the other hand, thinks SPRINT PCS are "attractive," and it upgraded the company to BUY from NEUTRAL. See this week's Upgrades & Downgrades. Aram Fuchs is the CEO of Fertilemind.net, an independent Internet equity research and consulting firm. At the time of publication he did not have any interest in the securities mentioned in this article. Mr. Fuchs frequently buys and sells securities that are the subject of his articles, both before and after publication.