Subject: [NEXTEL-1] Strong walkie-talkie demand boosts Nextel profit

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Date: Fri, 25 Oct 2002 16:11:44 -0400

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Strong walkie-talkie demand boosts Nextel profit

25 October, 2002 00:50 GMT+08:00

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By Yukari Iwatani

CHICAGO (Reuters) - Nextel Communications Inc. on Thursday posted a profit for the second straight quarter in a highly competitive wireless telephone industry on strong demand for its walkie-talkie service, sparking a 6.4 percent jump in its stock.

Nextel NXTL said it was helped by increased business from the construction and government sectors, lower capital spending and outsourcing customer service and computer operations.

Reston, Virginia-based Nextel reported third-quarter net income of $383 million compared with a loss of $150 million.

"The expectations had been ratcheted up for (Nextel) and they still topped it ... This one is basically a real good story," said Dan Zarling, telecoms analyst for U.S. Bancorp Asset Management.

Zarling added he was impressed with Nextel's ability to get more customers while increasing operating cash flow, a difficult feat because of the high costs of acquiring customers.

Since late last year, the wireless industry has seen demand slow and competition heat up after years of frenetic gains. With about half of Americans now owning cell phones, wireless operators have found it more difficult to add new subscribers.

However, Nextel has continued to post strong quarterly results, due to the popularity of Direct Connect, a service similar to a walkie-talkie, especially used by technicians and construction crews.

Shares of Nextel, the No. 5 U.S. wireless telephone company, rose 67 cents to $10.87 on Nasdaq as investors were buoyed by Nextel's report as well as strong third-quarter results from rival AT&T Wireless Services Inc. AWE , which reported late Thursday.

The company added 480,000 new customers in the United States in the third quarter and ended the period with about 10.1 million customers. It said it expected to add about 450,000 customers in the fourth quarter.

Paul Saleh, Nextel chief financial officer, declined to comment on the 2003 outlook but told Reuters in a telephone interview, "The trends have continued to be very strong in our business."

He said Nextel expected to get a boost when it launches nationwide Direct Connect in the third quarter of 2003. That service will allow customers to talk to other users via Direct Connect across the country instead of being limited to a geographic area as they are now.

"The main concern with Nextel is its ability to continue to grow subscribers at such a robust pace, while the rest of the industry is seeing dramatic reductions in subscriber growth, but so far so good," said Peter Friedland, wireless analyst with WR Hambrecht & Co.

Nextel's strong customer growth contrasted with customer losses reported by Cingular Wireless SBC BLS , the nation's No. 2 operator, and Sprint PCS Group PCS , the No. 4 operator, over the past week. The largest U.S. wireless operator, Verizon Wireless VZ VOD , was expected to report solid customer growth Friday.

Nextel's income available to common stockholders was $526 million, or 55 cents a diluted share, after special items, compared with a loss of $209 million, or 27 cents, a year ago.

Special items included a gain of $401 million, or 44 cents a share, to retire debt and preferred stock, and a charge of $3 million reflecting a decline in the value of some investments. Excluding the items, the profit was $128 million.

Revenue rose 26 percent to $2.28 billion from $1.81 billion, as average monthly revenue per customer held steady at $71 and customer turnover remained the lowest in the industry.

The company said it retired about $1.5 billion in debt and preferred stock during the third quarter. Since June 2001, it has reduced debt to $12.4 billion from $16.3 billion.

"It takes away any sort of viability concerns," said Todd Bernier, wireless analyst at Morningstar. "That was the big overhang in the company."

Nextel said earnings before interest, taxes, depreciation and amortization, or operating cash flow, rose 67 percent to $878 million for the quarter. It expected 2002 cash flow to top $3.1 billion.

"It's hard to poke holes in this," William Benton, wireless analyst with William Blair & Co., said of the results.

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