Carrier Stocks Surge On Solid Quarter

[Dukedog]

BYLINE: By Margo McCall

BODY:
The past three months have been brutal for wireless stocks. Companies once trading in the high double-digits slumped into single-digit turf, losing one-quarter, one-half or even three-quarters of their values.
Since it was carriers' lackluster fourth-quarter subscriber growth that temporarily extinguished investor interest, it is perhaps fitting that carriers' strong first-quarter results were credited last week with igniting the first wireless rally in a long time. The sector immediately turned to a sea of green, with some shares surging 30 percent--although the burst was short-lived.


Sprint PCS kicked off the rally Monday afternoon by reporting that its loss narrowed to $146 million, or 15 cents per share, compared with $391 million, or 40 cents per share, in the year-ago quarter. Analysts had expected the fourth-largest carrier to report a 20-cent-per-share loss. Sprint PCS also brought in 725,000 new subscribers, within the expected range of 700,000 to 750,000.
Nextel Communications Inc. added fuel to the fire Wednesday by reporting it added 502,000 new customers in the quarter. Nextel also would have narrowed its loss had it not taken a sizeable charge related to its accounting and recent outsourcing initiatives. As it was, the fifth-largest carrier reported revenue increased 22 percent to nearly $2 billion.

By the time Cingular Wireless reported its third consecutive quarter of so-so net additions on Thursday, the flames were dying down a bit and then turned to flickering embers when Nokia's lowered growth expectations hit the market like a pail of cold water. Cingular, a joint venture of SBC Communications and BellSouth Corp., said its 234,000 net additions--coming in more than half a million short of the 866,000 new customers added in the first quarter of 2001--resulted from the company's continuing campaign to switch its customers from analog to digital. The second-largest carrier did, in fact, add 533,000 net digital customers.

SBC CEO Ed Whitacre defended the carrier's performance. "Cingular's strategy is working," he told analysts. "The fact is, in the current environment, if you judge a wireless carrier the old way, simply by net adds, you're going to be disappointed."

Bill Crawford, a wireless services analyst with U.S. Bancorp Piper Jaffray, says he's "cautiously optimistic" about the sector. "There has been a shift in focus from net subscriber addition growth into more profitability. That actually is where Cingular's focus is. The fact that they are managing to get rid of some of the analog customers is a good sign," he says.

Elsewhere in the sector, regional player U.S. Cellular turned in weak subscriber numbers for the third quarter running, adding only 31,000 new customers. CFO Ken Meyers blamed the slowing economy as well as the loss of 13,000 customers due to the bankruptcy of one of its resellers. The company's churn rate remained a low 1.9 percent and its net income rose to $43.9 million, up from $30.4 million in the same quarter of last year.

Rural carrier Dobson Communications Corp., meanwhile, pre-announced it added 17,200 postpaid customers in the quarter, less than half the amount added in the first quarter of last year. In addition, its churn rate rose to 2.2 percent from 2 percent in the year-ago quarter.

There had been concern that Sprint PCS affiliates would continue to struggle with the carrier's Clear Pay program, which reaches out to credit-challenged customers but wreaked havoc on affiliates' bad debt levels and churn rates. But Sprint last week said its affiliates added 228,000 new customers in the first quarter, indicating that their net additions will meet forecasts.

President Charles Levine characterized the first three months of the year as "a great first quarter in what we expect to be a terrific year." Although Sprint PCS turned in strong results, CFO Art Krause declined to increase the year's net additions estimate beyond 3 million. Before a lackluster fourth quarter ignited fears of slowing subscriber growth, Sprint PCS had estimated it would add 3.6 million to 3.7 million new customers.

Nextel also did not waver from its goal of adding 2 million new customers this year, about the same number it added last year. The carrier continues to focus on a vertical market approach catering to the transportation, manufacturing, financial services and government sectors. The carrier also is trying to branch out into new customer segments and lower-cost distribution channels such as retail stores and Web sites, with a goal of having one-quarter of its gross additions coming from these channels by year's end.

Cingular Wireless

Earnings: $1.12 billion, compared with $972 million in 1Q 2001

Net Adds: 234,000, compared with 866,000

Nextel Communications Inc.

Earnings: Loss of $654 million

Net Adds: 502,000, above expectations

Sprint PCS

Earnings:Net loss of $146 million, compared with loss of $319 million in 1Q 2001

Net Adds: 725,000, within guidance

Source: Company Information