67 WALL STREET, New York - January 25, 2012 - The Wall Street Transcript has just published its Wireless Communications & Telecom Report offering a timely review of the sector to serious investors and industry executives. This Wireless Communications & Telecom report 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: 4G LTE and 3G Infrastructure Upgrades - Wireless Carriers Compete for Spectrum - Smartphone Operating Systems - Emerging Markets Growth Shifts to Data ARPU
Companies include: TriQuint Semiconductor (TQNT); U.S. Cellular (USM); AT&Ts (T); America Movil (AMX); Apple (AAPL); Atmel (ATML); Boingo (WIFI); Broadcast International (BCST); Broadcom (BRCM); Cavium (CAVM); CenturyTel (CTL); Cincinnati Bell (CBB); Cisco (CSCO); ClearOne (CLRO); Clearwire (CLWR); DISH (DISH) and many more.
In the following brief excerpt from the Wireless Communications & Telecom report, expert analysts discuss the outlook for the sector and for investors.
Jonathan Chaplin joined Credit Suisse in June 2009 as Senior Analyst covering the telecommunications services sector. Mr. Chaplin has been recognized as Best on The Street among telecom Analysts by The Wall Street Journal, second for stockpicking among telecom Analysts by Forbes magazine and as a leading stockpicker among Analysts covering all industries by Institutional Investor magazine. In addition, he was named as a runnerup in the Institutional Investor All-America Research team rankings. Before joining Credit Suisse, Mr. Chaplin was a Director and Senior Analyst covering the telecommunications, cable and DBS sectors at JPMorgan. Before joining equity research, Mr. Chaplin was an Investment Banker in the telecom media and technology group and the mergers and acquisitions group at JPMorgan. In addition to investment banking and equity research experience, he has direct industry experience consulting to telecommunications companies. Mr. Chaplin also started and ran several entrepreneurial ventures, including a magazine and two restaurants. Mr. Chaplin holds a B.A. and an LLB, J.D. equivalent, from the University of Cape Town.
TWST: What are the major investment themes you are watching in the communication services sector right now?
Mr. Chaplin: There are a couple of the big themes that we're watching right now. One is the evolution of data demand and the impact that has on spectrum, and how having or not having spectrum might shift competitive dynamics in the industry. That's probably one of the biggest themes that we're focused on at the moment. I think it has huge implications for the industry going forward. A secondary theme that we're focused on is the evolution of the prepaid space. Our view is that as share shifts from postpaid to prepaid, we're going to see the competitive dynamics in that piece of the industry shift interestingly as well.
TWST: When you talk about spectrum and companies that have it and companies that don't, is there still spectrum up for grabs or is ownership established?
Mr. Chaplin: There is about 500 megahertz of spectrum which has been issued that's mostly in the hands of the carriers, and it's not nearly enough to handle all the demand that is out there now. AT&T, for instance, cited the need to get their hands on more spectrum as their primary reason for attempting an acquisition of T-Mobile (DTE.DE). That, obviously, didn't go through. They now need to seek spectrum from alternative sources. Verizon has been just through a whole slew of spectrum acquisitions, most recently their acquisition of 20 megahertz of almost nationwide spectrum from the cable companies. They had done some transactions right before that with Leap, and some other small transactions recently. AT&T, separate from the T-Mobile acquisition, bought a bunch of spectrum from Qualcomm (QCOM). You've basically got a land grab for spectrum going on right now, and there is very limited supply, and it has interesting implications for a couple of companies.
Clearwire (CLWR) is the one company out there with massive amounts of unused spectrum, and we think that their spectrum is going to increase in value significantly as data demand increases. DISH (DISH) has also managed to get their hands on a significant chunk of really valuable spectrum, which puts them in a very interesting position in the industry as well. But outside of those, Clearwire's unused spectrum, DISH's unused spectrum, there is not a lot else out there. LightSquared made a play with spectrum that looks like it's very challenged because of GPS interference issues. Beyond that, we're looking at a multiyear process to reclaim spectrum from other holders like the broadcasters.
TWST: You mentioned that DISH and Clearwire have unused spectrum. Does it look right now as if they are going to use that or are they going to try to sell it to other companies?
Mr. Chaplin: With DISH, it's anybody's guess. They're saying they'd like to use it themselves, and that they are going to build a wireless broadband business, which is possible. That may be their genuine interest. I think a lot of investors speculate that they're looking to sell either their spectrum position or the whole company to somebody like AT&T, who we think urgently needs more spectrum soon, or Verizon or somebody else in the industry.
TWST: So based on where we are right now, who are your top picks in this space and why?
Mr. Chaplin: I think the two most interesting names in this space in the near term are Clearwire, whom we've already talked about, and MetroPCS (PCS), and both on a similar theme. These are two companies that had a really hard time in 2011. From a stock performance perspective, they really got hammered. In the case of Clearwire, we think with the breakdown of the AT&T/T-Mobile merger, there's going to be a big increase in demand for their spectrum. AT&T is going to need more spectrum. T-Mobile is going to need more spectrum. Leap and MetroPCS, who had planned to buy spectrum, need more specturm. So it creates a tremendous amount of demand for Clearwire's very scarce asset.
In the case of MetroPCS, the reason their stock got destroyed in 2011 was because their capex increased significantly, well above where investors expected it to be. The primary driver of that is because they don't have enough spectrum, they end up having to invest a tremendous amount in capacity on their network. If they had access to more spectrum, their capex requirements would fall dramatically. We think they're going to do a deal with Clearwire to get their hands on more spectrum. So both of those are the two most compelling names in the near term.
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