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Technology Stocks : Broadband Wireless Access [WCII, NXLK, WCOM, satellite..] -- Ignore unavailable to you. Want to Upgrade?

To: SteveG who wrote (299)	6/2/1999 1:07:00 PM
From: SteveG	Read Replies (1) \| Respond to of 1860

retirement of WCII's 14% paper is close at hand and seemingly inevitable.. Beyond executing to (and above) plan, strategic planning is always ongoing: Assets needed - short haul / local backhaul / European longhaul and transcontinental connectivity. Essential assets owned - HBW last mile connectivity. Think major player synergies. Do your OWN due diligence, but with more very good things very likely in store - the cliche "back up the track" has not been an unfamiliar concept recently.

To: SteveG who wrote (299)	6/2/1999 1:10:00 PM
From: SteveG	Read Replies (1) \| Respond to of 1860

Lehman ups TGNT/WCII targets: * We are raising the price target for Teligent (TGNT - 54 9/16; rated 1-Buy) from $50 to $68 and for WinStar (WCII - 51 3/8; rated 1-Buy) from $53 to $70 following yesterday's strong endorsement of fixed wireless technology from Qwest's (QWST - 40 3/16; rated 2-Outperform)and Liberty Media's (LMGA - 1-Buy; rated 1-Buy) investments in ARTT and Teligent, respectively. * Liberty bought 41% of Teligent, and Qwest bought 19% of fixed wireless operator Advanced Radio Teleccom (ARTT - 12 1/4; not rated;) as part of its push into local broadband. * As we have said, we believe that larger telecom companies will partner with or buy broadband fixed wireless companies as the technology proves in over the next year. We think that AT&T (T - 55 1/16; rated 1-Buy), MCI WorldCom (WCOM - 84 1/2; rated 1-Buy), Sprint (FON - 112 3/4; rated 1-Buy), Level 3 (LVLT - 72 1/2; not rated), and Bell Atlantic (BEL - 54 7/7; rated 1-Buy) are all possible buyers or customers. * We are taking our 10-year DCF revenue up 20%-30% to reflect the additional wholesale potential we see from larger companies embracing this technology. International expansion adds potential upside and catalysts over the next several months. * Teligent and WinStar are trading at firm values of $3.6-$4.4 billion, respectively, and $125-$145 per addressable line versus Teleport and MFS, which sold for $12 billion each and $350 per addressable line. ------------------------------------------------------------------------------ Summary Qwest and Liberty Deals - We view yesterday's moves as further validation of broadband fixed wireless technology and of our thesis that larger telecom companies will start to partner with and/or buy these assets as the technology proves in, just as AT&T and WorldCom bought fiber CLEC assets (Teleport and MFS) and cable assets as those technologies proved in. Previous outside validation has come from Williams' purchase of 2% of WinStar's capacity and McCaw's purchase of broadband wireless LMDS spectrum through NEXTLINK Communications (NXLK -76 3/16; rated 1). Qwest's 19% purchase of Advanced Radio Telecom and its announced plans to use this technology to further its aggressive push into adding broadband local connectivity is a clear validation. Although Liberty's endgame with Teligent is not clear, we believe that Liberty could be looking to sell this to a large telecom company at some point. In any case, what is clear is that a smart operator with close ties to AT&T has made a big bet on Teligent. We believe the broadband fixed technology is the most capital-efficient last- mile technology for 50%+ of the market (cheaper than fiber for all but the largest buildings). We believe that AT&T, MCI WorldCom, Sprint, Level 3, and Bell Atlantic are potential buyers, and we think that we will see more deals over the course of the next year. We note that Qwest and Williams (and SBC), which has rights to 2% of WinStar's capacity, both now have access to broadband wireless. Access/Local Lease Costs Could Fund Acquisition - Acquisitions of broadband wireless companies could be justified by access and local lease cost savings, by the potential to offer cutting-edge higher-bandwidth services and by the wholesale business potential. We estimate that the total potential business segment local lease costs for non-RBOCs are $15 billion today and growing rapidly with the growth in broadband demand ($15B = 90 million total single access-line equivalents (FCC data) x $14/unbundled loops per month x 12 months). We believe wireless can conservatively address about 30% of this for a potential saving to the industry of $5 billion today. The after-tax NPV of these savings offset by the capital cost reaches $12-$15 billion, which would more than pay for the acquisition of both WinStar and Teligent. International Expansion - We see international expansion from both Teligent and WinStar that could add upside and news-flow catalysts over the next several months. WinStar has announced its intention to be in 50 international cities overall and five by year-end. We believe that Teligent is working on international deals now. Valuation - We have increased our 10-year DCF revenue by 20%-30%, or about $1.5 billion each, to add in the upside wholesale revenue potential that we see coming from larger telecom companies. We initially included a conservative $1-$2 billion in wholesale for each company, but believe the market could reach $6-$8 billion over 10 years. Liberty Media/Associated Group Deal - We believe that this deal is a strong endorsement of the value of Teligent's wireless assets. The bottom line is that Liberty Media/AT&T was the only entity that could help the Associated Group with a $700 million+ tax problem. As compensation for buying Associated Group in a tax-free deal, Liberty effectively gets Teligent and the other assets at a 15%-25% discount. We think Liberty must be confident that there is significant upside and an endgame (like an acquisition) for Teligent for taking the risk rather than getting a more certain return, as is the case in most tax deals like this. We also note that, while Liberty's shareholders are different from AT&T's, the balance sheets are shared and Liberty could sell to AT&T in a tax-free deal down the road. In the meantime an AT&T board member will get educated on fixed broadband wireless. Details of the Liberty Deal - Associated Group, which held 19.7 million AT&T shares, 14 million Liberty shares, and 21.4 million Teligent shares, plus some other assets (see below), needed to sell to an AT&T entity in order to effect a tax-free transaction (see Lehman Tax and Accounting Note of 3/31/99 from Robert Willens). Associated shareholders will be given 19.7 million AT&T shares (total shares equal to those held by Associated) and 25 million Liberty Media shares (in total they will give Associated 25 million shares, issuing 11.4 million more than Associated held). The net is that Liberty Media gets about $1.1-$1.25 billion in assets, including the 21.4 million Teligent shares, valued at about $1.05 billion at Friday's close, plus Trueposition (a wireless locator technology), some Mexican wireless assets and the radio stations valued in total at perhaps $100-$200 million. The cost is 11.4 million Liberty shares valued at about $750 million on Friday's (May 28) close plus $187 million in assumed debt or a total of $940 million. Qwest/ARTT Deal - Qwest invested $90 million for a 19% stake in Advanced Radio Telecom (ARTT) as part of a larger deal where other investors, led by Oak Investment Partners, invested another $160 million. Advanced Radio Telecom issued about 3.1 million shares of convertible preferred at $80 per share, convertible into common at a 10:1 ratio. Qwest plans to use Advanced Radio Telecom's capacity as part of its aggressive push to add broadband local connectivity to carry end-to-end broadband services. Qwest and Advanced Radio Telecom will integrate their networks. Advanced Radio Telecom currently operates networks in Portland (Oregon), Seattle (Washington) and Phoenix (Arizona), and now plans to expand to 40 of the largest 50 cities in the country over the next two years, spending close to $400 million in capital. Advanced Radio Telecom has 100+ MHz in most markets in the country and 200 MHz or more in 25 of the top 50 markets, whereas Telnet has 400 MHz in most of the top 25 markets and at least 80 MHz in others and WinStar has 500-1000 MHz in most of the top 50 markets. ----------------------------------------------------------------------------- Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities. This document is for information purposes only. We do not represent that this information is complete or accurate. All opinions are subject to change. The securities mentioned may not be eligible for sale in some states or countries. This document has been prepared by Lehman Brothers Inc., Members SIPC, on behalf of Lehman Brothers International (Europe), which is regulated by the SFA. ]

To: SteveG who wrote (299)	6/2/1999 1:18:00 PM
From: SteveG	Read Replies (1) \| Respond to of 1860

ML on LBTA/TGNT: Investment Highlights: · On June 1, Liberty Media Group (LMGA, C-1-1-9, $66) announced that it will acquire The Associated Group in a tax free stock swap. With a 41% stake, Associated is currently Teligent's largest shareholder. This transaction is expected to close late 4Q98/early 1Q99. · Although we see some positive long-term strategic impacts as a result of this deal, we make no change to our estimates at this time. Our opinion remains intermediate term Accumulate and long term Buy with a 12-18 month price objective of $66 or 20% upside. Our valuation is based on our 10-year DCF model, a 15% discount rate, 9x terminal multiple, 39% terminal EBITDA margins, 4% share of its addressable market by ‘08E and no public market discount. · We see this transaction as having 3 main positive strategic implications for Teligent: · First, the “Malone factor”. We view Liberty's stake in Teligent as yet an additional endorsement of fixed broadband wireless as a strategically valuable local entry strategy. Although fixed wireless has recently received endorsements from major industry players such as AT&T, MCI WorldCom and Sprint, the addition of a highly regarded strategic investor such as John Malone (Liberty's Chairman and CEO) is clearly a plus. · Second, we view this deal as a possible precursor to strategic alliances between Liberty and Teligent. These alliances could involve the utilization of Teligent's wireless local broadband infrastructure and Liberty's “content” to address high growth areas such as e-commerce, general internet and specialized services, specialized data and content delivery. · Third, with approximately $4B in cash, Liberty could serve as an important back-up source for new capital to Teligent. · What Does This Deal Mean For Teligent's Valuation? Although the tax-free nature of this transaction makes valuation analysis a little difficult, we derived an implied valuation for Teligent of $50 based on the following assumptions: a) $760M in net value to Associated shareholders (11.5M Liberty shares at $66); b) $187M in assumed Associated debt; c) $250M estimated value for “other assets” at Associated (primarily True Position, radio broadcast assets and Mexican cellular); d) $400M in assumed avoided capital gains tax liability ($800M in total, split 50/50 between Associated and Liberty); e) 41% Associated ownership stake in Teligent; and, f) 53M shares outstanding. · Additional Thoughts On Valuation: Although we note that this transaction was at a 24% discount to our YE ‘00 private market value estimate and only a $1 premium over Friday's close, we note the following: 1) there is no control premium associated with the deal; 2) the transaction is tax-efficient for the seller; and 3) there is great potential for new business opportunities between Liberty and Teligent.