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To: Bernie Diamond who wrote (7848)	10/8/1998 2:56:00 PM
From: TPN35	Read Replies (2) \| Respond to of 10227

=Small-Cap Phone Cos In Freefall As Mkt Skepticism Grows NEW YORK (Dow Jones)--Despite the unwavering support of many Wall Street analysts, small-cap telephone stocks are in the midst of a dramatic freefall that's showing no sign of letting up. Companies like Intermedia Communications Inc. (ICIX), ICG Communications Inc. (ICGX), Nextlink Communications Inc. (NXLK), Allegiance Telecom Inc. (ALGX) and Winstar Communications Inc. (WCII) have declined by 20% or more this week alone. Analysts have argued that the losses are more reflective of market psychology than weakness in the companies' underlying fundamentals. But some investors aren't so sure. "People are just starting to raise the question, 'are there fundamental problems here?"' said Patrick Kane, a telecom analyst at Federated Investors. "We may have to reasses some of our assumptions." At a time when the economy was strong and the high-yield bond market was welcoming, these start-ups were among Nasdaq's darlings - even though most of them don't expect to have positive earnings before income tax, depreciation and amortization, or EBITDA, until at least the year 2000. But over the past few months, as U.S. economic forecasts grew darker and access to new capital in the junk bond and equity markets dried up, investors have rushed to the exits. For the year, these competitive local exchange carriers, or CLECs, have undeperformed the S&P 500 by 67% through the middle of September, according to Merrill Lynch & Co. And given this week's losses, which have dropped many of these stocks to 52-week lows, the year's performance looks even worse. Through it all, many high-profile analysts are sticking with their buy recommendations for the CLECs, insisting that companies that are essentially in line with revenue and network build-out expectations are being unjustly punished. "These stocks are taking it on the chin even though their fundamentals are fine," said William Vogel, an analyst at NationsBanc Montgomery Securities. "People aren't doing any fundamental analysis - they're just selling the sector, they're spooked." Others note that companies such as Intermedia, E.Spire Communications Inc. (ESPI), and Teligent Inc. (TGNT) are fully funded for their current business plans and won't need to rely on the high-yield or equity markets for at least the next 12 months. What's more, Jack Grubman of Salomon Smith Barney is expected to soon issue a report underscoring his faith in the companies and reiterating buy recommendations, according to a market contact. As perhaps Wall Street's best known and most respected telecom analyst, Grubman's support for the sector would carry some weight and could potentially curb some of the selling. Grubman did not return phone calls.