Stifel Nicolaus Expert Analyst Sees Low Growth In US Wireless Businesses, Current Picks Are In Latin America And Other International Markets

• On 2:27 pm EST, Tuesday November 3, 2009

67 WALL STREET, New York - November 3, 2009 - The Wall Street Transcript has just published its Telecommunications Services & Equipment Report offering a timely review of the sector to serious investors and industry executives. This 20 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Telecom Carriers VS. Telecom Equipment Vendors - Increased Competition Hurts Profitability Among Telecom Carriers - Net Neutrality Battle - New Telecom Players Apple & Google - High-Growth Opportunity In Latin American Market - Rural Local Exchange Carriers - Fierce Wireless Competition - Significant Deceleration In Wireless Subscriber Growth - Upgrade To 4G - Secular Decline In RLEC Sector - Regulatory Environment - Unlimited Pay-In-Advance Segment Is Fastest-Growing In Wireless

Companies include: Ciena Corporation (CIEN); AT&T (T); Alcatel (ALU); Apple (AAPL); CenturyLink (CTL); Clearwire (RLWR); Comcast (CMCSK); Consolidated Communications (CNSL); ERF Wireless (ERFW.OB); Frontier Communications (FTR); Google (GOOG); Intel (INTC); Iowa Telecom (IWA); Knology (KNOL); Leap Wireless (LEAP); Liberty Global (LBTYA); MetroPCS (PCS); Millicom (MICC); NII Holdings (NIHD); Nortel (NTL); Sprint (S); T-Mobile (DT); Telefonica (TEF); Tellabs (TLAB); Time Warner Cable (TWC); Time Warner Cable (TWX); TracFone (AMX); Verizon (VZ); Wal-Mart (WMT); Windstream (WIN).

In the following brief excerpt from the just one of the in depth interviews in the 20 page report, an industry expert analyst discusses the outlook for the sector and for investors.

CHRISTOPHER C. KING is a Senior Telecom Services Analyst and Principal at Stifel Nicolaus, where he covers telecommunications and cable services firms. His current coverage universe consists of rural local exchange carriers (RLECs) as well as Regional Bell Operating Companies (RBOCs), in addition to a focus on Latin American and national independent wireless carriers. Mr. King joined the Legg Mason telecommunications equity research team in January 2001. He was an Equities Trader and fixed-income Analyst with Wachovia Bank and Allfirst Bank. Five years prior to joining Legg Mason/Stifel, Mr. King was a Financial Analyst with Allfirst in the company's brokerage and capital markets groups. Mr. King has a bachelor's degree in politics and economics from Wake Forest University and an MBA with a concentration in finance from the University of Maryland.

TWST: What about international activity? What do the international companies look like?

Mr. King: That depends on what part of the world you are going to be looking at. But I think as carriers, particularly in the U.S. and in other more mature markets, begin to look for top-line growth opportunities, some of the emerging markets out there are going to be a key focal point for them because if you look at wireless penetration levels in areas of the world like Latin America, Africa, Asia, they are still well below what we see in Europe and North America. So from that perspective, the organic growth driver is still there in those regions of the world, where they may not be necessarily here in the U.S. or in North America or Europe.

TWST: In general, are these companies all fairly similar at this point in terms of offerings and market penetration?

Mr. King: No, not really. I think you can sub-segment them and within those sub-segments they are fairly similar. Verizon and AT&T, for example, we would view as fairly similar, certainly in terms of broader operational trends. They differ from the standpoint of having a greater percentage of their revenues coming from wireless and that kind of thing. But in terms of the operational activities of those two companies, they are fairly similar. Sprint doesn't have a wireline ILEC business any longer. They do have an enterprise long-haul business, but they are really out of the ILEC business, which makes them different from Verizon and AT&T. And even between Verizon and AT&T, you have Verizon being much more aggressive rolling out fiber to the home through its FiOS project, AT&T taking a little more of a conservative approach with more of a fiber-to-the-node product in its footprint. So there are significant differences even there. I think, generally speaking again, you can lump a lot of the RLECs in the same pile that will all become high-dividend, high-payout business models over time. But you've got various issues at each company. You have CenturyTel, which recently bought Embarq and became CenturyLink (CTL). You've got Frontier Communications (FTR), which is trying to close the large acquisition of access lines that they are buying from Verizon. And then you've got Windstream (WIN), which is basically just continuing to focus on blocking and tackling. So those are the big three RLECs out there at this point. And then certainly within the U.S. wireless sector, you've got Sprint, which is still trying to focus on the postpaid side of the business, although much of their growth has come from the prepaid side. A lot of people lump them in a bucket with guys like Leap Wireless and PCS, which are entirely prepaid, generally all-you-can-eat-type price plans type of things. So there are some differences. But I think you can group these companies within a couple of different sub-segments within the telecom industry. And broadly speaking they're generally fairly similar within those sub-segments.

TWST: Who are your top picks right now and why?

Mr. King: With our view of the U.S. being a more mature telecom market with very little near-term, organic growth opportunities out there, we focus more on the emerging market names. Our top pick right now is NII Holdings (NIHD), which is a Latin American carrier based on the old Nextel business model here in the U.S. - so push-to-talk, walkie-talkie-type of product focusing on small and medium businesses in Latin America. We like Millicom (MICC) as well, which is a global, pure-play, emerging-market wireless operator, which has operations primarily in Central and South America as well as Africa. The business model there is essentially using a lot of the strong, more consistent free cash flows that are coming out of markets in Latin America to fund a lot of the growth opportunities that the company feels are still ahead of them in Africa. So we think it has a good mix of more mature, kind of stable free cash flows that are helping to fund a more aggressive expansion in Africa, where they are in a lot of markets with penetration levels below 20%. So we think there is some very strong growth opportunities left ahead of them there.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 20 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

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