[contains Governali on NXLK-WNP] <..I assume here POP just means population coverage and in no way factors in the quantity of spectrum covering each POP???..>
Yup.
<..This doesn't make any sense to me. At least using channel-pops attempts to compare apples to apples...>
Looking for a job as an analyst? I wonder what Zito gets paid? You even get assistants to do a lot of your work FOR you.
<.If we're to value the licenses on the top 40 markets or so, I'd believe Nextlink has about 1000 MHz,..>
I think Perry said they got 1000MHz in the top 20 markets. transmission, do you remember (or know) these WNP figures?
<..WinStar 750 MHz, and Teligent probably 240 MHz (or so, I don't remember where I put Teligents prospectus)..>
This sounds about right.
<..This would value WinStar's licenses at only around $3.75/POP (instead of their $19/POP) and Teligent at around $1.50/POP (instead of $16/POP)...>
The way he came up with this is taking the enterprise value, deducting capital expenditures and operating losses to date, and dividing by the number of POP. (I'll let you or someone else look up and do the verifying number crunching as I have to head out in a few minutes.) Heclaims he doesn't LIKE the use of this metric, especially for start-ups, but claims to not have a better metric currently. He acknowledges the significant time to market advantage that WCII and TGNT have.
<..At least I think we're at a point in the game now where the dollar value of the licenses is pretty meaningless...
I think the numbers validate in the direction of more than the auction indicated.
<..Numbers like these two or three years ago may have sunk us...>
I think channel-POPs is a much better metric. I'll be curious to see how others report this transaction. Grubman and Governali can't directly comment on this regards WCII (curently restricted), but here is Governali's take on NXLK-WNP. (I'll try to get and post Grubman, Henry (BS) and Lazard's comments soon. I was got Merrill's - maybe tonight or in the AM)
Summary
NXLK is a rapidly growing CLEC competing with incumbent local
exchange carriers (ILECs) to provide small and medium-sized
business customers with local, long distance, and data transport
services. Currently, NXLK serves 33 markets in 11 states,
including California, Nevada, Utah, Illinois, Ohio, Tennessee,
New York, Georgia, and Pennsylvania.
NEXTLINK announced that it has reached an agreement to acquire
WNP Communications, Inc. for $695 million in cash and stock. In
addition, NEXTLINK announced that it has agreed in principle to
acquire Nextel Communications' fifty percent interest in
NEXTBAND, a joint venture of Nextel and NEXTLINK, for $137.7
million. The moves gives NEXTLINK the necessary spectrum to
offer fixed wireless CLEC services nationwide. The agreements
augur well for NEXTLINK, as it will enable the company to
complement their wireline strategy with a fixed wireless
component. This will enable NEXTLINK to more cost effectively
reach customers while at the same time increase the company's
addressable market and speed the time to market . Importantly,
it offers the alternative for NEXTLINK to bypass the local
exchange carriers (LECs) for last mile connectivity, thereby
boosting margins. We have viewed NEXTLINK as the pre-eminent
CLEC in the nation, and this move reinforces our view. We
reiterate our Buy rating on the stock and our DCF derived price
target of $48.
Terms of the Agreement
Under the terms of the agreement, NEXTLINK will acquire WNP
Communications, Inc. for $695 million in cash and stock. That
amount is comprised of approximately $542.1 million for WNP and
$152.9 million in license charges to the Federal Communications
Commission (FCC). NEXTLINK will receive WNP's 39-A block LMDS
(local multipoint distribution service) wireless licenses that
cover approximately 98 million POPs and 1-B block LMDS wireless
license covering 16 million POPs . NEXTLINK will utilize the
LMDS licenses to construct fixed wireless extensions to its local
fiber networks. The transaction is subject to certain federal
regulatory approvals.
In addition, NEXTLINK will acquire Nextel Communications' fifty
percent interest in NEXTBAND, a joint venture of Nextel and
NEXTLINK, for $137.7 million. NEXTBAND controls 13-A block LMDS
licenses and 29-B block LMDS licenses. According to the company
the acquisition price paid to Nextel for their portion of
NEXTBAND is based on the same value per megahertz per thousand
POPs used in the WNP transaction.
Combined, the 82 licenses will give NEXTLINK 95% coverage of the
top 30 markets and access to 65 markets, addressing 150 million
POPs. Once the acquisitions have been completed, NEXTLINK will
be the largest holder of wireless spectrum in the United States.
In fact, NEXTLINK will have twice the spectrum of Teligent and
more than WinStar. According to NEXTLINK's management, with the
decrease in the cost of fixed- wireless equipment and the
competition among equipment vendors , there was no better time to
make this move. NEXTLINK will begin trials of its fixed
wireless system in the second quarter of this year at its NextLab
facilities in Texas. In addition, the company will run trials in
California.
NEXTLINK plans to begin limited commercial deployment by the
fourth quarter of this year and expand its deployment in 2000 .
As such, revenues this year will not be impacted materially .
There may be a positive revenue impact in 2000 if the company
chooses to use the wireless technology to broaden its addressable
market. The key advantage of the wireless alternative however is
on the margin side. Ultimately, it should allow faster
deployment of network that requires lower capital spending and
lower operating costs. Initially, EBITDA will be slightly
negatively impacted this year as the company bolsters its staff
(primarily its technical staff) to work on the fixed-wireless
plan. Longer term EBITDA should improve. While the company will
be investing more capital in order to deploy the wireless
networks (10% more capex in 2000 ), this increase in spending
will be more than offset by the benefit to margins. Thus,
return on invested capital should improve as a result of the
utilization of wireless facilities . Indirect benefits also
exist. First, the company will have greater control over its
customers. Second, it will be creating a more valuable franchise
that at some point may become important to buyer. We will be
modeling the change in the company's financials, and are
confident this investment in spectrum will lead to a higher
valuation for the stock.
Outlook
The acquisition of WNP's LMDS licenses and Nextel's fifty percent
interest in NEXTBAND further supports our belief that NEXTLINK's
management team is appropriately focused on building a robust
facilities-based network and generating the highest possible
returns. By using both a wireline and fixed- wireless approach,
NEXTLINK will position itself as having one of the more robust
and extensive networks in the industry . The fixed-wireless
assets will allow NEXTLINK to reduce its reliance on the local
exchange carriers (LECs) for last mile connectivity, thus
increasing its on-net percentage and in turn increasing margins.
This will eventually allow NEXTLINK, like other CLECs with fixed
wireless capabilities, to deploy its network with the maximum
amount of end-to-end service on a national level (combined with
NEXTLINK's interest in INTERNEXT LLC). We continue to view
NEXTLINK as a core holding in the sector and reiterate our Buy
rating on the shares. |
