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Technology Stocks : LAST MILE TECHNOLOGIES - Let's Discuss Them Here -- Ignore unavailable to you. Want to Upgrade?

To: Frank A. Coluccio who wrote (3419)	4/19/1999 9:29:00 AM
From: Darren DeNunzio	Read Replies (1) \| Respond to of 12823

Winstar, I must admit this one slipped right passed me! Winstar is a consolidation play as the means for a long-distance provider to bypass the regional Bell operating companies (RBOCs) to provide local service. Over the last 24 months, all but a few of the national independent integrated communication providers (ICPs) larger than WinStar have been acquired by larger telecom companies. WinStar is one of the best strategically positioned ICPs. WinStar is establishing an end-to-end broadband network by achieving a 10% market share shift in voice in the buildings in the markets that it operates. WinStar is establishing in excess of 670 lines of capacity using point to point and over 2,000 lines of capacity with point to multipoint, to targeted buildings that will result in breakeven on capital deployed with the acquisition of one customer (the average customer uses 20 lines) WinStar provides many of the same services as incumbent local-exchange carriers (ILECS) and traditional competitive local-exchange carriers (CLECS), however the local loop (last mile) is not a physical connection. Rather, a microwave link is established between the customer facility and the local switching center. Unlike wireline TCPs, WinStar's time to market is thus greatly accelerated and capital costs are significantly lower. Further, WinStar can avoid some or all of the interconnection fees charged by ILECs for access to the local loop. Arguably, wireless service providers like WinStar provide the quickest, cheapest and fastest solutions to the local area bottleneck and we believe WinStar will continue to successfully tap into the more than 750,000 commercial building market in the U.S., only a very small percentage of which have broadband connections. The ICP sector's long-term prospects should also benefit WinStar. We estimate the addressable ICP business market at approximately $93 billion. The market segment is experiencing strong volume and revenue growth (12%-plus and 8%, respectively) and declining unit costs. Furthermore, business customers are extraordinarily profitable due to the diffused focus of the ILECs on the small business segments. WinStar, like many other CLECs, has also increasingly focused on a bundled product offering of local, long-distance, and data and enhanced services and we believe therefore that it is appropriately called an integrated communication provider (rap). We believe the ILECS will lose 5% of customer market share per year. The ICPs should capture a significant portion, translating into at least $3 billion per year in incremental revenues. We believe that WinStar will emerge as one of the "winners" because it enjoys an attractive combination of these characteristics. The flexibility of wireless access technology permits provisioning of smaller buildings that are not economic for the installation of fiber optic lines. WinStar does not have to lay underground fiber to establish broadband connections to customer buildings Winstar is the largest holder of wireless spectrum in the U.S. WinStar owns licenses predominately in the 38 Ghz band in 120 major markets, including the top-6O, covering over 200 million Pops and an estimated 80% of the country's business access lines. WinStar also successfully bid on 15 licenses in 28 Ghz LMDS auctions, where it acquired 16.8 million POPs. Winstar's spectrum holding not only supports its end-to-end broadband strategy but presents a barrier to entry to aspiring market entrants. While WinStar owns spectrum in 120 major markets, WinStar operates in 30 markets. WinStar plans to double the U.S. reach of its broadband network to 60 major markets over the next two years and to serve an additional 50 major international markets within five years. WinStar's plans are ambitious and, although. there is certainly execution risk, we believe the risk is mitigated by a highly experienced management team and various other factors including its: 1) extensive ownership of spectrum; 2) impressive headway in securing the critical building access rights necessary to build out broadband wireless networks; 3) ability to install wireless radio equipment and establish a broadband last mile connection to a customer building within a few weeks after obtaining building access; 4) scaleable technology with which it can create wireless broadband connectivity to a building at a fraction of the cost of a fiber link; and 5) its ability to generally match capital expenditures with revenue generating customers. A wireless versus a fiber buildout offers clear economic advantages as the cost of constructinq a wireless last mile connection is significantly less than the cost of creating the same connection using fiber Further, the overwhelming percentage of construction costs for wireless is attributable to technology, whereas only a small percentage is attributable to labor. Accordingly, the company's cost of establishing broadband last mile connections to buildings using wireless service is falling as an increasing number of vendors are manufacturing wireless radio equipment and as more advances are being made in radio technology. We expect these trends to continue and in fact be accentuated in light of the recently introduced point-to-multipoint (PMP) technology which will cut the capital cost of adding a subscriber roughly in half by eliminating one of the two radios necessary to complete a "link". Winstar should also benefit from what we expect to be the evolution of a business customer's needs from principally voice services to high-speed data and multimedia and video conferencing. We believe winStar will have the ability to scale the amount of bandwidth to the customer, enabling it to capture incremental revenue in these fast growing market segments with little, if any, incremental cost. Central to the scalability of WinStar's broadband network, is its "Wireless Fiber" which uses the 38 GHz, 28 Ghz and other portions of the radio spectrum to carry voice, data and video transmissions. Its wireless technology services can provide fiber-quality transmission at speeds more than 350 times faster than ISDN and far greater than DSL (currently point-to-point supports speeds of up to 45 megabits/second and by 2H99 PMP should support 155 megabits/second) - It is an attractive alternative to T-1 lines (leased phone lines), as it is less expensive and provides equivalent or even greater bandwidth. WinStar should benefit from the "parachutting" or "airdropping" of personal computers to the desktop. With increased computing power due to the evolution of processors - Pentium I, to II, to III - and the development of advanced applications, more sophisticated networks will be required to enable PCs to run applications such as streaming video or eventually full motion interactive video. WinStar is focused on providing the network connections and professional services to small and medium sized businesses that will enable these businesses to benefit from such applications. Winstar currently has over 4,200 roof rights and should reach over 8000 by year-end. WinStar has 23 switches in the ground currently (and over 100 data switches) with approximately 20% of all access lines on-net and 40% of lines on-switch. Therefore, most of WinStar's revenue is still derived from the lower margin resale business. This is changing. As discussed above, through programs such as "Project Millennium," the company has begun to intensify the focus of its sales and marketing efforts on customers located in buildings connected to its local broadband network. These efforts should result in higher margins as its local broadband networks continue to expand and a greater percentage of its customers are located in on-net buildings. Over the course of 1998, WinStar entered into two agreements to purchase fiber capacity, in July 1998 with Metromedia Fiber and in December 1998 with Williams. These agreements provide WinStar with a substantial portion of the intercity fiber necessary to interconnect its local broadband networks; a large amount of intracity fiber in six major cities in the nnited States, which WinStar will use to interconnect its hub and switch facilities in such cities; available capacity for future growth; and reduced costs related to the transmission of the company's long-haul traffic and intracity back-haul traffic.