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Technology Stocks : NEXTEL -- Ignore unavailable to you. Want to Upgrade?

To: Larry S. who wrote (9005)	4/7/1999 1:08:00 AM
From: Leo Abenes	Read Replies (1) \| Respond to of 10227

To all: Good read on NXTL from WSJ Interactive MCI WorldCom Sought Out Nextel As Long-Distance Cell-Phone Use Grew By REBECCA BLUMENSTEIN Staff Reporter of THE WALL STREET JOURNAL NEW YORK -- MCI WorldCom Inc.'s talks to acquire Nextel Communications Inc. have been prompted in part by the growing number of cellular-phone users making long-distance calls, causing MCI WorldCom concern that other long-distance companies are stealing its customers. Three years ago, most cell phones were used to make local calls. Today, it is estimated that more than one call in eight involves long distance. Most analysts believe these numbers will continue to rise sharply in the immediate future. Boosting the number of wireless long-distance calls are the hugely popular flat-rate, nationwide plans that don't charge extra for long-distance calls. AT&T Corp. and Sprint Corp. have signed up hundreds of thousands of users on such plans in the last year. Move to Wireless "Our long-distance traffic growth is increasing at a triple-digit rate for wireless," said Dan Hesse, president of AT&T Wireless. "There's no question there is long-distance traffic historically handled by wire line that is moving to wireless." MCI WorldCom doesn't own a wireless business, but Bernard J. Ebbers, its president and chief executive, said earlier this year that he could be persuaded to enter the wireless arena if the numbers of wireless long-distance calls increased significantly. If MCI WorldCom's talks to buy Nextel, reported Tuesday in The Wall Street Journal (see article), are successful, the Jackson, Miss., company would gain a national wireless network that some analysts say could be marketed to residential customers as well as Nextel's existing base of business users. "Long distance has become such a commodity business that these all-inclusive plans are ways for companies to bring more customers to their long-distance network and a way for them to differentiate themselves," said Mark Lowenstein, a senior vice president at the Yankee Group, a Boston-based telecom consulting firm. One drawback is that AT&T must pay independent cellular companies for roaming charges when its customers make calls in areas not covered by its own national network. Numbers Seen Growing While long distance represents about 15% of wireless calls now, the Yankee Group believes that portion will grow as the number of wireless subscribers doubles in the next four years. There are about 69 million cell-phone users in the U.S. today, or about 25% of the country's population, according to the Cellular Telecommunications Industry Association. Cell-phone usage is expected to quadruple as callers increasingly use their wireless phones for accessing their e-mail and the Internet as well as making long-distance calls. "Wireless is going to start displacing wireline traffic," said Mr. Lowenstein. On word of the talks, MCI WorldCom's stock dropped $2.9375 to $89.5625 Tuesday in composite Nasdaq Stock Market trading. The drop was not as steep as some had predicted, leaving MCI WorldCom's stock at near record levels and signaling that the market may be comfortable with such a deal. Nextel's stock fell 43.75 cents to $39.1875. Still, a deal is far from complete. One person close to the talks said the two sides remain 15% apart on price. Though exact numbers are hard to come by, it is the surging increase in wireless use by cell-phone owners such as Kelli Upton, a Seattle-based recruiter, that are prompting a reordering of the traditional long-distance industry. Ms. Upton uses her cell phone so much that she has cut off the long-distance service at home provided by MCI WorldCom. Deliberate Decision "It's less expensive for me," says Ms. Upton, who uses a Sprint PCS plan that offers 1,500 minutes a month, including free long-distance calls, for $70. Ms. Upton likes it so much, she says, that she has convinced her mother to cut off her long-distance service as well in exchange for a cell phone. MCI WorldCom is one of the nation's largest wireless resellers, offering service in 60 markets nationwide by marketing the service of other providers. MCI made a deliberate decision not to participate in auctions for cellular licenses, preferring to rely on selling the services of other companies. Before merging with MCI, WorldCom also steered clear of wireless. Instead, it focused on other high-growth areas such as data traffic and the Internet. MCI has taken a close look at Nextel in the past. In 1994, MCI announced it would pay $1.3 billion for a 17% stake in Nextel, but later backed out because of concerns about Nextel's technology. Merrill Lynch analyst Daniel Reingold said a Nextel purchase would make sense for MCI WorldCom. In a report, Mr. Reingold said a Nextel acquisition would enhance MCI WorldCom's growth by 30% to 38% over five years. But he added that if such a deal is done without using the "pooling-of-interests" accounting technique, the purchase would reduce MCI WorldCom earnings in the year 2000 by 25% to $2.10 from an estimated $2.80. Andy Sukawaty, chief executive of Sprint PCS, Sprint's wireless unit, said the popularity of calling plans that include free long distance has surged in the past few months -- traffic that he says is taking customers away from competitors like MCI WorldCom. "If you go to an airport, people are making calls everywhere," said Mr. Sukawaty. --Steven Lipin contributed to this article.