Telecommunications Merger Predictions: Smaller Players Consolidating In ILEC, RLEC, And Wireless Sectors According To Industry Expert

• On 12:51 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 - International Wireless Winners

Companies include: Ciena Corporation (CIEN); ERF Wireless (ERFW.OB); AT&T (T); Alcatel (ALU); Apple (AAPL); CenturyLink (CTL); Clearwire (RLWR); Comcast (CMCSK); Consolidated Communications (CNSL); 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 just one of the in depth interviews in the 20 page report, an industry expert 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: Tell us about Stifel, Nicolaus and Company and your telecom coverage.

Mr. King: I've been covering telecom services for 10 years, first at Legg Mason and now at Stifel, Nicolaus. Stifel acquired the capital markets division of Legg Mason in 2005. Stifel, Nicolaus is a St. Louis-based, full-service investment firm. We have retail offices around the country as well as a capital markets division, and we have approximately 65 senior analysts.

TWST: What do you cover within telecom?

Mr. King: Telecom services, the Bells, U.S. wireless - to the extent there is a stand-alone U.S. wireless industry anymore - and some international wireless companies as well as several cable services names, such as Comcast (CMCSK), Time Warner Cable (TWC) and Liberty Global (LBTYA).

TWST: What is the status of the sector right now?

Mr. King: I think from an investment standpoint, at least on the services side, telecom services has been out of favor for a while, certainly for the majority of 2009. It's generally either viewed as a late cyclical or defensive industry, which certainly does not typically do well in the kind of an emerging recovery-type of environment. You have the enterprise segment for the larger telcos that typically is a late cyclical-type of segment within the companies. You also have the two significant growth drivers that the industries enjoyed over the last five to 10 years, broadband and wireless, beginning to slow simply from a penetration or a saturation standpoint. There is very little organic growth with the current set of assets that the telecom companies have. And they have been hampered a bit, as everyone has, by the macroeconomic environment as well. So you saw the Bells in particular and some of the rural independent telephone companies in the U.S. strongly outperform in the fourth quarter of last year when everyone thought the world was falling apart. But now from a market performance perspective, they have underperformed the broader market so far year-to-date.

TWST: You mentioned saturation in the market. Are we at market saturation in this sector?

Mr. King: Certainly these segments themselves are still growing, but growth has slowed significantly over the last several years. From an industrywide perspective, wireless net adds have fallen off by several million from their peak on an annual basis. You have carriers like Verizon (VZ) and AT&T (T) that continue to do well. But more and more, they are doing it at the expense of carriers like Sprint (S) that continue to lose postpaid subscribers. So from an industry standpoint, there is still growth, but it's certainly much slower growth than it has been in the past.

TWST: What are the trends in this sector? What do you see in terms of products and services, or mergers or other trends?

Mr. King: My short answer is that it depends. From an M&A standpoint, we view it as unlikely that AT&T or Verizon is going to do anything significant from an M&A perspective. We put the odds on that as fairly slim. We think from a regulatory standpoint, things would quickly get very difficult for them to do any acquisition of any size, certainly of any U.S.-based assets. It's not to say that they won't look internationally, but certainly in the U.S. for the time being, the Bells are probably done buying significant assets. I think you could see some consolidation among the smaller players, both in the RLEC, the independent ILEC side of the industry, as well as wireless players. Sprint Nextel, everyone likes to speculate about what's going to happen to them. Then you have the Leaps (LEAP) and the MetroPCS (PCS) of the world - people endlessly speculating about their endgame as well, and whether those two get together at some point. So I think you could see some consolidation among the smaller players. But I think by and large the Bells are probably going to be sitting on the sidelines for the long term.

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 .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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