Subject: [NEXTEL-1] Get ready for a wireless war

From: [email-masked]
Date: Thu, 04 Sep 2003 21:30:46 -0400

Get ready for a wireless war 
 
Carriers will likely spend heavily to keep customers once number 
portability kicks in this November.
September 4, 2003: 1:51 PM EDT 
By Paul R. La Monica, CNN/Money Senior Writer

NEW YORK (CNN/Money) - On Nov. 24, the long-awaited wireless number 
portability rule kicks in, which will allow cell phone users to keep 
their numbers when they switch service providers. 

So if the hassle of letting people know your new number is the only 
reason you've stuck with your current service, you will soon be in 
luck. And based on the backlash the wireless industry received after 
last month's blackout, there may very well be a bunch of customers 
looking to switch. 

Curiously, the pending change has not fazed investors. (Maybe they 
are too busy chatting away on their cell phones to notice.) 

Shares of Nextel are up 64 percent this year. AT&T Wireless has 
surged 56 percent. Sprint PCS is up 26.5 percent. And the stocks of 
several regional wireless carriers, such as Triton PCS (TPCS: 
Research, Estimates) and Western Wireless (WWCA: up $0.40 to $19.43, 
Research, Estimates), have rallied sharply as well. 

It's going to get ugly
But wireless number portability has the potential to make an already 
tough business even more competitive. "This is going to cause a mess 
next year and into 2005," said Patrick Comack, an analyst with Guzman 
& Co. "It's going to be an ugly period for a while." 

Whoa there, wireless!
Pure play wireless carrier stocks have surged this year... 
 
  Company   YTD price change  
 AT&T Wireless  56.1%  
 Nextel  64.0%  
 Sprint PCS  26.5%  
 Triton PCS  51.9%  
 U.S. Cellular  14.1%  
 Western Wireless  259.1%  

 Source:  Thomson/Baseline 
 
Comack said that wireless carriers would likely have higher churn 
rates, which means more customers dropping service. In addition, many 
may increase the amount of handset subsidies, i.e. offering 
prospective subscribers cell phones at discounted prices. 

And in a recent research note, Wachovia analyst Jennifer Fritzsche 
noted that the biggest negative associated with wireless number 
portability is not that carriers will lose a lot of customers but 
that they will spend a ton to keep them. 

In other words, if you think wireless companies advertise a lot on 
television now, you ain't seen nothing yet. 

Local and long distance lag
...but wireline phone companies have missed out on this year's rally. 
 
  Company   YTD price change  
 AT&T  -14.8%  
 BellSouth  -1.4%  
 Qwest  -12.0%  
 SBC Communications  -15.3%  
 Sprint  3.6%  
 Verizon  -6.5%  

 Source:  Thomson/Baseline 
 
And of course, the carriers will likely come up with creative new 
pricing plans in order to lure customers and hang on to existing 
ones. 

Add all that up and you have lower profit margins. 

"This is going to cause more price wars, minute wars, whatever you 
want to call it," said Comack. "It's great for consumers but terrible 
for the wireless companies." 

Time to hangup on wireless stocks
So which carriers are at the most risk? Mike Hodel, an analyst with 
Morningstar, said that companies that are doing a good job of holding 
onto customers, firms like Nextel (NXTL: up $0.60 to $19.54, 
Research, Estimates) and Verizon Wireless (which is co-owned by Baby 
Bell Verizon (VZ: up $0.54 to $36.79, Research, Estimates) and 
British telecom Vodafone) will probably see the lowest increase in 
customer churn. 

Sprint PCS (PCS: up $0.11 to $5.65, Research, Estimates) and T-Mobile 
(owned by Deutsche Telekom) will see the biggest spikes, Hodel said 
while Cingular (co-owned by Baby Bells SBC Communications (SBC: up 
$0.34 to $23.29, Research, Estimates) and BellSouth (BLS: up $0.52 to 
$26.04, Research, Estimates)) and AT&T Wireless (AWE: up $0.01 to 
$8.83, Research, Estimates) will be in the middle. 

Regardless of which companies win or lose the most though, wireless 
number portability should further hammer home the biggest problem 
with the sector: there is little that distinguishes the services 
other than price. 
      
The one true technological differentiator had been Nextel's push-to-
talk walkie-talkie service and that's no longer unique either as 
Verizon Wireless entered the market and other carriers are looking to 
do so as well. 

"We don't think too highly of wireless carriers as investments since 
products are so similar to each other. It doesn't give these 
companies a strong competitive advantage," said Hodel. 

So let's add it up. This is an industry where the only real selling 
point is price and companies spend heavily on advertising, keeping 
margins thin. Plus, with the coming rule change in November, it will 
be easier for consumers to change service providers. 

It sounds like wireless is facing the same problems as the long 
distance and local phone companies. And those stocks have been dogs 
this year. There's a disconnect somewhere and it looks like it's on 
the wireless side. 

http://www.google.com/url?sa=X&oi=news&start=0&num=1&q=http://edition.cnn.com/cnnfn/2003/09/04/technology/techinvestor/lamonica/

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