Subject: [NEXTEL-1] Smith Barney On LNP-

From: [email-masked]
Date: Tue, 25 Nov 2003 17:44:22 -0500

11/24/03
We visited and called a number of wireless stores today to capture an overall
impression on how the first day of Local Number Portability affected sales and
volumes. We have captured some helpful anecdotal observations, but view the
first day of porting to be too early from which to draw any longer-term
implications. Bottom line, we continue to view LNP as a risk to free cash flow
for the wireless sector during 2004. We believe Verizon Wireless will take the
greatest-share of port requests during LNP based on network quality and its
value proposition, while T-Mobile USA should take share with aggressive pricing.
Here are some overall thoughts:

LNP showed an increase in volumes in some major cities and anecdotally point to
Verizon Wireless as the greatest beneficiary followed by T-Mobile USA. Our
overall impression was that New York City and some of the other larger cities
such as Los Angeles and Atlanta were seeing an increase in sales activity
related to the implementation of local number portability. Within that context,
Verizon Wireless and Tmobile USA seemed to have the most pronounced positive
impact to sales from porting, whereas we believe AT&T Wireless was softer and
performance was exacerbated by the GSM CRM system outage for a number of hours
during the middle of the day.

Our checking showed that Verizon Wireless stores in NYC exhibited the heaviest
foot traffic, as we had to take a number and wait twenty minutes in two separate
stores at different times for a sales person to assist us. While our experience
in the Verizon Wireless store was a little disappointing due to the wait time,
the store was extremely busy with customers looking to switch their numbers from
other carriers. Our channel checks with T-Mobile USA were also encouraging. Our
discussions with T-Mobile sales representatives in one particular store in New
York City revealed that traffic store traffic was busy all day and the store
more than doubled its normal volume. In fact, we learned that 80% of today’s
activations were port requests from former PCS and AWE customers.

Checks show the porting process is moving forward within the anticipated 2 ½
hour window, but not all ports (including my own) were entirely
smooth. Considering there are roughly 160-170k gross activations (including
disconnections) in a day, the comments that we have received and read in the
press from carriers and intermediaries is that porting activity fell well above
these historical averages, which shows that customers care about portability and
imply switching providers switched at an overall faster pace. Interestingly, we
find the companies that are reporting light volumes relative to “expectations”
in the news media are the ones that seem to be at the losing end of the share
game, based on our channel checks.

Our personal experience on day-one showed the speed-bumps of a new process as my
number porting did not occur right away with an attempt to port service from
AT&T Wireless to Verizon as an add-on to an existing rate plan with Verizon. A
sales representative explained that certain area code exchanges with AT&T
Wireless were not porting-in automatically, and a manual fax process had to
intervene that extended the window from within 2.5 hours to between 3 and 24
hours. In the meantime, I have a temporary phone number to use on the Verizon
Wireless phone, and a fully working AWE phone as if nothing has changed. As a
customer, I was not inconvenienced with a working mobile and E-911 service on
both carriers, but I do have to wait some extra time to get the port done.

Promotions focused much more on handset pricing, as retailers and carriers
increased the number of free-phone offers and focus on family plans. We would
note that early LNP competition has initially focused around handset pricing as
more freephone offers hit the market. Additionally, retailers are adding fuel to
the fire with additional incentives to increase breadth of free phone offers to
encourage churn. Our net conclusion is that carriers and retailers are
encouraging churn and new industry net adds by dropping the price of phones,
while staying very competitive on rate plans (especially by pushing family
plans). We find the rollout of AWE's aggressive free phone for life retention
program is a surprise after the company's indication on its 3Q/03 conference
call that it will remain selective in its approach to retain customer.

AT&T Wireless’ GSM CRM system was down again today and was unable to activate or
port-in customers to GSM service for a varying amount of time, depending on the
store. We found the most interesting development is that AT&T Wireless’ GSM CRM
system was down for a few hours (depending on the store), thereby prohibiting
the company from activating new GSM customers. AWE sales representatives said
the system was down intermittently yesterday as well. We believe AWE's continued
problems with its GSM CRM system will have a dilutive effect on sales during
4Q/03. We believe AWE's continued system problems raise a greater question as to
whether these challenges will slow the pace of integration and cost savings for
2004.

Carriers and retailers were not broadly pushing porting just yet as we suspect
all parties are waiting to get some traction and experience with the process
first. We believe carriers and retailers are not aggressively pushing LNP yet to
battle-test the systems and get some experience first. We would expect more
surprises and competitive responses as we move through the first month of LNP,
and the holiday selling season begins in earnest over the next two weeks. As of
now, wireline-to-wireless demand remains unclear, but our checks show the
super-majority of ports (around 80—90% if we had to take an educated guess based
on our anecdotal checks) coming from wireless-to-wireless. Rate plans could
become more aggressive to target greater landline substitution of minutes, but
that is always the risk as rate plans within wireless become more competitive
with time.

Companies mentioned: Sprint PCS (PCS–$4.35; 2S); AT&T Wireless (AWE–$6.61; 2H),
Verizon Communications (VZ–$32.42 1M), Sprint FON Group (FON–$15.38; 1H)