Subject: [NEXTEL-1] Prepaid Boston Communications & Nextel? Could Boost Get The Boot?

From: [email-masked]
Date: Mon, 15 Dec 2003 13:18:19 -0500

Prepaid Boston Communications & Nextel? Could Boost Get The Boot?
Taking Stock: Investors Just Don't Hear The Call

By William Schaff,  InformationWeek
Dec. 15, 2003

URL: http://www.informationweek.com/story/showArticle.jhtml?articleID=16700411

A stocking full of coal is all that shareholders of Boston Communications Group
Inc. have gotten this year. As of Dec. 10, the company's stock price was down
38% since the beginning of the year. You might presume revenue is down and the
company is losing money every quarter, but that isn't the case. There are,
however, other reasons behind the decline.

Boston Communications offers prepaid wireless phone systems to carriers such as
Verizon Wireless and Cingular. Normal wireless phone service, referred to as
post--paid, is when payment is made after actual usage. Post--paid subscribers
have been the major source of revenue growth for carriers. As penetration rates
have passed the 60% mark, growth has slowed, so wireless carriers have turned to
other sources of growth: people who don't qualify for or don't want a post--paid
calling plan.  Examples are teenagers, people with poor credit, and recent
immigrants, who don't have a credit history.

As with so many other telephone services, getting the billing right is often the
hardest part. Prepaid wireless billing needs to be real time, or else a call
could continue beyond the paid--for time. Boston Communications is one the few
companies that offers a true real--time system. The company also makes it easy
to add time on its prepaid system.

Boston Communications gets paid per minute of use across its network. As minutes
of use have increased in the last couple of years, revenue has grown. In the
third quarter of 2003, revenue increased 59% over last year. Meanwhile, gross
margin expanded by more than 9 percentage points to 73.1%. For the next quarter,
Boston Communications expects revenue from billing and transaction--processing
services (90% of third--quarter revenue) to be up 60% year over year, with
earnings per share hitting 23 to 24 cents, more than double that of last year.

Two issues cloud Boston Communications' future. First, Freedom Wireless has sued
the company, claiming that the intellectual property at the heart of Boston
Communications' offering belongs to Freedom. The lawsuit is pending. The bigger
issue is the possibility of customer defection. Verizon Wireless is Boston
Communications' largest customer, accounting for about half of revenue.
Recently, Verizon started to develop its own prepaid platform. Information about
the success of Verizon's efforts, I believe, will likely trickle out next year,
with Boston Communications not taking a hit until 2005. On the positive side,
Nextel has tested Boston Communications' prepaid wireless offering and may
select it as a national partner. This could make up for some revenue lost if
Verizon defects.

Boston Communications' stock price got clobbered once the Verizon news hit. At
current levels, the market appears to be pricing the company as if the loss of
Verizon is a done deal, so the stock is trading at eight times First Call '04
earnings--per--share estimates. If the stock continues to fall, it may be cheap
enough for me no matter what Verizon decides to do.

William Schaff is chief investment officer at Bay Isle Financial LLC, which
manages the InformationWeek 100 Stock Index. Reach him at [email-masked].
This article is provided for information purposes only and should not be used or
construed as an offer to sell, a solicitation of an offer to buy, or a
recommendation for any security. Bay Isle has no affiliation with, nor does it
receive compensation from, any of the companies mentioned above. Bay Isle's
current client portfolios may own publicly traded securities in one or more of
these companies at any given time.

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