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Technology Stocks : CAWS - Wireless Cable (New and Improved) -- Ignore unavailable to you. Want to Upgrade?

To: Zorro who wrote (4936)	4/16/1998 7:47:00 PM
From: Zorro	Read Replies (2) \| Respond to of 5812

Moody's cuts ratings of 6 wireless cable operators Thursday April 16, 5:21 pm Eastern Time (Press release provided by Moody's Investors Service) biz.yahoo.com NEW YORK, April 16 - Moody's Investors Service downgraded the credit ratings of the following issuers: American Telecasting, Inc. (ATEL - news) - Caa1 to Ca CAI Wireless Systems, Inc. (CAWS - news) - Caa3 to C CS Wireless Systems, Inc. - Caa1 to Ca Heartland Wireless Communications, Inc. (HART - news) - B3 to Ca People's Choice TV Corporation (PCTV - news) - Caa1 to Ca Wireless One, Inc. - B3 to Ca. The above rating actions stem from an increasingly negative outlook for the wireless cable sector, which has been growing over the last several months but has now become readily apparent due to two very recent announcements. Last week, American Telecasting (ATEL) reported that it was seeking consent from bondholders to waive a prepayment requirement based on certain asset sale proceeds realized in a December 1997 transaction with Bell South. Additionally, ATEL issued a tender offer to repurchase up to $17.5 million of its 14.5% senior discount notes due 2004 (approx. $200 million face amount at maturity; $197 million accreted through 3/31/98) and 2005 ($202 million; $140 million) at a substantial discount - 22.5% and 25.5%, respectively. And yesterday, Heartland Wireless announced that it would not make a $7.5 million interest payment as scheduled (4/15) on its $115 million of 13% senior unsecured notes due 2003. These two announcements are viewed by Moody's as tell-tale signs that the multichannel multipoint distribution service (MMDS) industry is in worse shape than our ratings anticipated and reflected, and we now question the viability of these issuers. The lower rating on the debt of CAI Wireless is attributed to a much higher level of debt per subscriber relative to its peer group, as well as the presence of structurally senior indebtedness aggregating $50 million of face value at maturity. Although multichannel multipoint distribution service (MMDS) has significantly lower capital requirements, the industry has been continually plagued with problems in achieving expected and sufficient subscriber levels, mostly due to line-of-sight and channel capacity issues stemming from its relatively narrow band of spectrum. MMDS wireless cable systems use microwave frequencies in 200MHz of spectrum licensed by the FCC to provide multiple channel subscription television programming. Services are generally available to customers within a 35-mile radius of a central transmitter site. With the capability to deliver only up to 33 channels of analog video to subscribers, in addition to local off-air television broadcast signals, it has been nearly impossible for MMDS operators to effectively compete with incumbent cable operators, despite a typical pricing structure that is 20% to 30% lower than that for cable. The prospect of digital compression as a solution to this competitive disadvantage afforded considerable financial support from both the capital markets and several telephone companies, in the form of new debt and equity issuances, as recently as just two years ago. Time has perhaps been the biggest enemy of the MMDS platform, however. Economies of scale to support the development of digital set-top boxes were absent for this smaller constituency, and manufacturers instead focused on digital equipment for the cable industry, which had much broader potential. Technological difficulties coupled with a major midstream switch in platforms created numerous delays in production. It is only recently that digital converters have become available for deployment in any capacity. And it appears that only the well-heeled RBOCs are actively looking to deploy digital wireless video services. Still, the single largest problem that virtually all wireless operators are facing today is a general lack of liquidity. While the financial community seems to have recognized the fundamental problems associated with the technological limitations of MMDS as a delivery vehicle more than a year ago, when virtually all financial support was cut-off, similar conclusions by the RBOCs that had partnered with some of the operators were not evidenced until far more recently. With debt service costs mounting and precious little capital remaining, the wireless industry is in serious need of investment from larger communications companies. Despite the apparent support from the FCC on the regulatory front, the future of the rated MMDS operators seems to be in serious jeopardy. Moody's has historically differentiated its wireless ratings based on subscriber statistics and geographic focus of the industry participants, generally awarding those operators in more rural territories a higher rating. At the present time, Moody's believes that the recovery prospects for most issues are dismal. While we believe there is some value in the bandwidth spectrum, and potentially in the respective subscriber bases (which range from approximately 60,000 to 140,000) of the affected issuers, there remains a great deal of uncertainty as to exactly who the potential buyers might be. Although wireless cable companies would seem to represent good strategic partners for RBOCs, Internet service providers and/or PCS operators, particularly the latter given their adjacent spectrum in the 2GHz band, Moody's remains skeptical that they would be willing to make incremental investments in MMDS, particularly when other more promising and competing technologies are just now gaining steam. While a select few MMDS providers have made small inroads relative to the more rural cable operator group, mainly to price sensitive customers due to a more comparable service offering at discounted rates, we expect that further subscriber gains will slow and/or begin to erode. Moody's also believes that potential revenue streams from several alliances with DirecTv that were formed last year are not likely to meaningfully impact the wireless industry. Most MMDS operators have actually stopped marketing their analog services altogether, and have postponed comparatively expensive system upgrades to support digital compression. Rather, MMDS providers seem to have recognized that video alone will not be sufficient to support their business plans and heavy debt burdens, and are looking to two-way Internet access as a potentially better use of their spectrum. Like cable modems, new wireless Internet technologies utilizing cellularized transmission systems and frequency reuse have demonstrated the ability to deliver two-way access at speeds significantly faster than that which is currently available over land-based telephone lines. Moody's believes that operators will face stiff competition in this area, as well.