I haven't heard much lately about the T-Mobile IPO. Among all of the talk of debt reduction and the bond issue I would have thought that this would have been mentioned.
Have I missed something?
Also, it seemed that about two or three weeks ago talk was rampant about possible mergers between AT&T and Cingular, Cingular and Qwest (Wireless), and others. Has any one heard more on wireless mergers that could be in the works for 2003?
Don't take me wrong, I think Cingular is a great carrier. But, if I had to pick one that is more susceptible than the others it would be Cingular. There will come a time when capacity issues and the desire to be aggressive in the wireless data market will fall victim to Cingular's poor national spectrum standing - compared to VoiceStream, Verizon, Sprint, and AT&T.
The ARPU history on VoiceStream shows that they can generate better numbers than they are currently. Continued cost reduction, and streamlining will help. IN FACT, this is where VoiceStream may excel beyond Verizon's capabilities. As I understand it, Verizon still operates 14 different billing systems. This means a lot of duplication on a lot of different levels, which does not lend itself to cost reduction. Couple this with the fact that Verizon has begun to compete with calling plans offered by VoiceStream and others in the "more minutes for less money" category, and you may start to see Verizon's ARPU erode. Churn has improved for VoiceStream, and will continue to do so as it distances itslef from growing pains of billing conversions and merger/acquisition issues.
As for CapEX, I doubt any number would be high enough for any carrier. And I'm not so sure about dollar for dollar advantages due to either side depending on technology. Verizon may be at a disadvantage cost wise as it implements upgrades to a technology that is grossly behind GSM in terms of economies of scale. I may be full of S**t on that point however.
Cingular has actually been doing a bang up job in the background. Take 11 billing systems and merge them into a single one. Take two PCS properties with limited penetration (BellSouth DCS and PacBell PCS) and meld them with the AMPS and TDMA properties while still trying to keep modern handsets rolling out to the customers. Talk about impending CapEX as they forget new ground with GSM950, the fourth band of GSM with no other company using it.
I agree with your Cingular assessment. Its a huge challenge to bring this company towards profitability.
On VSTR, if you combine their churn (still high) and their ARPU and EBITDA per user, the value per customer is far lower than with Verizon. So not only do you need to decrease churn, but you need to increase ARPU and/or decrease costs. The way to do that IMHO is to move towards the business customer segment because customers usually don't pay for their service themselves, are therefore price insensitive, and pay more per month. The challenge there is to keep them. Because they care mostly about coverage/quality, again, I believe VSTR will find it challenging to say the least.
By the way, 1.6 Billion $ in Capex per year will not cover the kinds of coverage issues VSTR faces US wide.
Your analysis of VoiceStream based against Verizon is interesting. My opinion is that customers are becoming less susceptible to the coverage advantages that Verizon has. Specifically, Verizon's coverage advantage in major markets where the two carriers compete is mostly analog. Anyone who has used a dual mode CDMA phone knows that flipping into analog mode offers less than appealing service. Still, the advantage does exist and whether it's high quality coverage or not, it's still coverage. However, I'm more inclined to think that the major competitive force is rate price and bundling.
If I was going to pick the major carrier that is set up to fail, it would not be VoiceStream, but Cingular. Cingular is in an odd position of having to cobble together coverage via alliances with other carriers. The fact that Cingular is itself a joint venture, and that it is invloved in other joint ventures that are required to keep it competitive makes me think it could be the first to fall. Add to this that it's spectrum position has been reported to be weak in the markets it serves is yet another reason it could go down first.
I don't think any of the carriers will go under, more that they would be broken up into pieces and sold off.
FINALLY - thanks for the correction on Nextel and VSTR profitability. The next time I'm speaking to my buds at Nextel and VoiceStream I'll tell them they're full of Sh**.
VS contract churn declined sequentially from Q4 01 at 3.3% to 3.0% in Q1 02 - a significant drop in just three months. IIRC, Verizon's churn is about 2.4%. Prepaid churn isn't really a valid measure for VS since they are actively churning people off prepaid to contracts..... IIRC, it was in the range of 4-5% a year ago but I'd have to double check that (the numbers for Q1 are from their PR)
DT just raised 4.6B last week in a bond issue. VS is spending about $1.6B per year in capital expenditures (400M in Q1) and is getting California and Nevada for next to nothing.....Cingular is spending $450M to upgrade that part of their network to get ready for VS, before VS contributes a dime to that part of the joint venture (VS does have some expenses in NYC)
The challenge for DT in the US is to decide how much cash they want to spend in building out VoiceStream's network and increase coverage and quality. VoiceStream has a long way to go to compete with the likes of Verizon and others in terms of coverage. I believe that this ir reflected also in the high churn of VoiceStream customers who get most frustrated by the lack of quality and coverage. If you compare this to Verizon's lower churn numbers, you know why people switch. The problem is that DT has no cash to build out the VoiceStream network, so it won't decrease the churn numbers which in my view will lead to VoiceStream failing in the US market. It is certain that it will fail in relation to the big ambitions Professor Sommer has in the US. He has no cash. I would sell VoiceStream.
Both VS and Nextel are reporting net losses. Some of the loss (most in VS case) was due to one-time charges due to accounting changes for license amortization.
From the 10Qs
VS adjusted EBITDA $43M
Net loss before income tax expense ($301M)
Income tax expense ($3,304M)
Total Net loss ($3,605M)
So for VS the income tax expense is a one-time accounting deal. A better comparison may be the 301M loss in Q1 2002 as compared to the 650M loss in Q1 2001. Keep in mind the VS 10Q does NOT include Powertel. PTEL files separate 10Qs that are not addressed here (but are included in the press releases and is probably why I think T-Mobile advertises an approx $75M Q1 EBITDA for all of VS incl. PTEL)
NXTL had a 238M loss (compared with loss of 286M in 2001 Q1), plus a 353M tax write off for a total net loss of 591M. I believe Nextels 1Q EBITDA was positive at $586M, compared to $353M last year in q1.
I'm sure there are people a lot smarter and a lot more knowledgeable than me that can confirm this, but it really is pretty easy to confirm this. Just go to the fundamentals section of Quicken or a bunch of other sites and you'll see for your own eyes that neither Nextel nor DT are profitable yet. I too believe that EBITA positive and cash flow analysis is a good indication of the potential for a company to make future profits and continue as a going concern. But please let's not equate PROFITS with EBITA or Cash flow. I'm not trying to get bogged down in technicalities. I just think there is an important distinction between the potential for future profits and actualized profits. Judging by the hammering EBITA positive companies have taken over the past couple of years, I'm obviously not the only one.
Nothing new has come out other than speculation. There are some hard facts that lead creedance to such mergers happening:
1. Bellsouth wants to shead itsself of its wireless burden (aka 51% of Cingular). Its a big hole to toss mony down since they've got to upgrade the majority of thier infrastructure just to stay competitive with the others who have or are in the process up having those facilities in production (GSM, GPRS, EDGE 3G)
2. Spectrum: There isn't going to be any more... so who has it now will have to either be bought out or negotiated with (ie $$$).
The IPO for T-Mobile will bring lots of capital into DT's coffers, but the majority of thier staff is still focused on Dial-Tone specific tasks which is seeing increased competition. Such goes the world of Telecom...where a new fancy low cost box (read that as being amortized for a maximum of three years) replaces a switch which which has traditionally be amortized over decades.
When the world changes do you change with it?
Bellsouth does nto own 51% of Cingular. It is 60-40 with SBC controlling the 60%. Secondly bellsouth cannot opt out of the cingular deal without having to oay SBC a large penalty , of several billion dollars. And finally where did you get the idea that Bellsouth wants out?
These DT fools keep on saying the same thing about their T-Mobil IPO....when the market improves, they'll float the IPO. What they don't say, is that they ARE the market. It's kind of like saying that DT won't improve until DT improves. Anyways, Eick said that they're possibly thinking about the fall of this year. He made that statement at about the same time he made his 5.5 billion calamity proclamation. In all fairness, I have to say that the 5.5 billion statement was reasonable simply for the fact that they had the VSTR off-set to claim. The 5.5 billion doesn't really represent how well the company will do (or not do). It's really more of a paper loss than anything else. All things considered though, I wish they would just shut up for a half year or so.
Incidentally, the report mentioned that they couldn't reach a company representative for comment on Eick's statement. If they can't trust Eick (the CFO), who can they trust?
Wow. There's a lot of negative sentiment on this board lately. Sure DT has fallen 90% in a few years, but we�re up 3% today. Where�s the love? In case anyone missed it, there�s a pretty good article in Business week on the Telecom debacle. Essentially it�s the same things we�ve talked about so far, but with a very sarcastic and doomsday tone. The point they made which I think we can all agree with is that Telecom execs had a gun pointed at their heads by greedy finance ministers in the US and elsewhere. Buy from us limited spectrum and die a slow death or drop out of the bidding war and die a quick death. I think we�ve pretty much nailed everything that�s wrong with DT and the industry, but the more intriguing question is can the industry be turned around? From my perspective IMHO the answer is not until all wireless Telecom�s file bankruptcy. I just don�t think the governments are going to give wireless Telecom�s a break for putting a gun to their heads. The shocking thing is that these governments don�t realize that they didn�t just put a gun to these companies heads�they pulled the trigger. IMHO, the build out of the network and the spectrum charges are too large to turn a profit given how much they charge customers now and even in the future. I�m curious what other people think. I know Sommers has no idea. Maybe someone here can figure this mess out.