Here's my read on the annual meeting. Some comments come from the public meeting, others from a small discussion with Akerson before the meeting and still others from conversations with various NXTL officials before and after the meeting. Granted,I'm repeating many of the comments made by others but bear with me. This will be a multiple page post with comments broken down by category:
MARKETING
1. NXTL's domestic adds are NOT leveling out. In fact, NXTL is expanding their growth slower than the marketplace wishes. Several large mass retailers have approached NXTL begging for a retail phone package that they can sell in much the same way as AT&T does. NXTL says "No thanks, not yet." Why? Simple. They're picking the low hanging fruit so why jam their still emerging national network and risk an AOL-like system overload experience? I predict that when the network is closer to completion NXTL will spring an exciting RETAIL marketing plan that will knock our socks off. Look for adds to continue to grow for AT LEAST THE NEXT TWO YEARS.
2. Look for NXTL to go after the consumer market sometime within the next two years but only after NXTL is convinced that they can handle the expected SURGE in new customers. NXTL phones already have the capability to allow new customers to program their own DC selections but so far NXTL has chosen not to tell customers how to do it. The only thing necessary to unleash the consumer side of the business is for Akerson to say, "Go for it!" When NXTL has the human and hardware infrastructure to handle the growth, it will happen. More on what's
required to complete the network later.
3. As recorded on pages 4 and 14 of the 10K, NXTL has targeted "distinct occupational groups". Of those, 50% penetration has been reached in one group, the others have less penetration. Thus, there's still lots of low hanging fruit in existing targeted groups, not to mention the rest of the market. That means NXTL is kicking the competition WHILE TARGETING ONLY A SMALL SEGMENT OF THE WIRELESS MARKET.
4. NXTL has only twelve, count 'em, 12, local calling areas in the U.S. Pretty incredible, isn't it?
FINANCIAL
1. NXTL has NO NEED TO GO TO THE CAPITAL MARKETS AGAIN UNTIL LATE 1999, EARLY 2000. Akerson stated that earlier they were concerned about potential tightening of financial markets so they took care of the financial needs and they now have enough capital to last until the end of the millenium. (This one - not the next one!)
2. Based on a question at the meeting, Akerson has agreed to consider moving from NASDAQ to the NYSE.
3. Privately NXTL management says DOMESTIC operating cash flow will turn positive in the 3rd quarter. Publicly they're saying later this year.
4. No commitments were made for DOMESTIC net income but my conservative financial model says that 2001 is the year.
5. Free DOMESTIC cash flow is expected in 2000. That means excess cash after capital requirements so the lion's share of the network will be done by 12/31/99.
OPERATIONAL
1. NYC capacity problem: As mentioned by several others, NXTL is working on the problem right now and will DOUBLE capacity.
2. Akerson made several tangential references to the back room problems and suggested that NXTL is in the process of fixing those personnel and system based problems.
3. NXTL had 4,000 cell sites at 12/31/97, will add 2,000 this year. THEY NEED BETWEEN 8,000 AND 10,000 CELL SITES TO APPROXIMATE THE COVERAGE OF THE COMPETITIONS' ANALOG SYSTEMS. Based on their
current construction pace, look for 8,000 cell sites at 12/31/99, giving them a mature network with competitive wide area coverage. NXTL BUILT MORE CELL SITES IN 1996 & 1997 THAN ANY OTHER TELCO. NXTL is so far of the digital buildout curve that it's amazing that competitors aren't shaking in their boots. (Maybe they are!)
4. So far this quarter ARPU is running higher than last quarter. That's amazing considering the lower base rates.
5. Usage is currently peaking at 50% in some markets, with some at 80%-90% peak usage. NXTL is attacking this on at least three fronts: They're adding 18-20 switches this year (they had 17 at 12/31/97), adding 2,000 cell sites (50% increase over 12/31/97), and working on the 200 upper channels (see below).
6. Thanks to the 475 licenses that NXTL won in the FCC Upper Channel auction, NXTL now has at least 15 mhz of spectrum in the top 50 U.S. markets (almost 20 mhz in Boston) and 11 mhz in the U.S. Ten mhz of that spectrum will be contigious which will allow NXTL to have additional operating efficiencies than at present, thus adding to capacity.
7. NXTL is seeking an outside partner or partners for the rural areas. NXTL will insist on the same high standards with seamless operation. Also NXTL will take an ownership position in any outside partners.
8. 5 mhz of spectrum in each market is owned by non-emergency utilities for their private use. Understandably that spectrum is underutilitzed so NXTL has petitioned the FCC for permission to buy the spectrum if utilities wish to sell. Several utilities have expressed interest in selling to NXTL as long as they have no-cost access to the system for their existing private needs. Why would they do that? There's lots of reasons, including upgrades from analog to digital, wider area coverage, access to NXTL's North American footprint and they will no longer have to maintain the system. If the FCC allows it, this will be a HUGE WIN-WIN for NXTL and the utilities. Think about it - Our PCS competitiors have 25 mhz of spectrum so NXTL could end up with 80% (instead of the current 60%) of the bandwidth that PCS now enjoys. Whoa, doggies!
9. 30% of NXTL's cellular traffic is INBOUND, compared to 17% expected. So what's the big deal, you say? Folks, this is the first hint that NXTL's customers are using this system like a fixed wire telephone system. How so, you say? Don't you see that this means that NXTL users are GIVING THEIR TELEPHONE NUMBERS TO EVER INCREASING NUMBERS OF FOLKS. The downside is cellular is 3:1 while DC is 6:1, thus heavier system usage. 2/3 of air time is DC but the cellular % continues to grow.
10. The average NXTL customer uses 350 minutes per month.
11. NXTL has 300,000 customers with an average of 5.2 phones per customer.
12. There are 100,000 users and growing on 120 networks.
COMPETITION
1. T has shot itself in the foot in some markets with their nationwide pricing plan. How so? They actually raised prices in some markets. Thanks, AT&T, NXTL will take advantage of your mistake. Pray tell, AT&T, why are your requiring a long term contract for digital users to use your new pricing plan? Could it be that T is shaking in its boots and is trying to buy time so that can figure out how to stop NXTL? Save yourself some brain power: The answer is YES.
2. Besides T, Sprint and NXTL, who else will have a national digital wireless footprint? Answer: NO ONE!!!!!! NXTL may not end up being the digital 800 pound gorilla but THERE'S NO QUESTION THAT NXTL WILL ONE OF THE THREE JUNK YARD DOGS IN THIS BUSINESS. Sick 'em, NXTL!
3. Assuming the rumor about Erickssen's DC look-alike entry is true, NXTL probably has 18-24 months before another telco will be able to compete in the two-way radio arena. In my opinion, NXTL will have between 4.5 and 5.5 million users at that time. AND THAT DOES NOT INCLUDE ANY RETAIL CUSTOMERS.
4. NXTL is succeeding by winning more than its share of analog conversions to digital.
5. The 1000 will be introduced soon, plus a hi speed data product will be introduced next year. So much for MOT not being a GREAT one source supplier (and partner). No less that Dan Akerson himself gets together with MOT honchos every six weeks or so for high level pow-wows. One hand washes the other. Need we say more about the superlative partnership that NXTL and MOT have carved out?
MORE TO COME |
