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

To: Arnie Doolittle who wrote (9012)	4/9/1999 12:19:00 PM
From: SteveG	Read Replies (1) \| Respond to of 10227

<..At NXTL's current annual growth rate of 1.5 million net adds per year, they would add 13.5 million users bertween 1/1/99 and 12/31/07, giving them in excess of 16 million customers at 12/31/07. As per the more inclusive quote of the report excerpt (below), the 15.1 million subs figure is what is Lehman needs to assume (with a 12.5% WACC) to get to a end of 1999 share price target on Nextel of $40: "..In order for investors to pay the current share price for Nextel, one must be comfortable that either the discount rate of 13% which we are using is too high by around 200 basis points or that Nextel will achieve penetration substantially above what we are estimating or a combination of the two. Even assuming a discount rate of 12.5% (between the 12.0% rate we use for mature cellular operators and the rate of 13.0% used for PCS operators), we need to assume 2007 penetration of 6%, 2007 ending subs of 15.1 million and capex per ending sub of $723. This would also require a solid pick up in the near term quarterly net subscriber additions to the 450,000 to 500,000 range..." <..Yet they are projecting 9.8 million users...> The table with the 9.8M sub figure summarizes the actual assumptions used to get to Lehman's current end of 1999 share price targets of these companies: (quoting from the report in my post): "..Now turning to cash flows, how much do we need to adjust upward our assumption of 2007 penetration in order to get to current share prices? The table below summarizes Lehman Brothers' current assumptions of 2007 penetration and 2007 subscribers and penetration/subs which would get us to the current share prices..." <..And are they conservative or what on their 12/31/07 arpu of $44?..> The $44 number is based on their big picture view that wireless penetration in 2007 will be 50%+, but in order to drive that sort of penetration - pricing will need to come down on a per minute basis to be more competitive with wireline. They also believe for Nextel that with higher sub numbers they will see deeper penetration into the consumer market and that the mix shift away from mostly high ARPU business users and toward lower ARPU consumer users will result in a reduction in ARPU. They do give Nextel a premium ARPU to their other wireless companies to reflect their higher percentage of higher ARPU business customers. So in terms of data, they DO factor data usage into their ARPU estimates. Fwiw.