Broadband Players Have Their Day In The Sun
June 7, 1999
Just two months after turning in lackluster performances, the wireless broadband sector saw a huge increase in demand as well as bond prices last week, and some market sources said there is more to come.
The biggest news was a cash infusion in Advanced Radio Telecom from Qwest Communications and a handful of venture capital firms. Based on the $90 million invested by Qwest alone for a 19% stake, Advanced Radio suddenly finds itself with a valuation of about $470 million, analysts said. It also saw a dramatic increase in secondary trading of about 15 points to the low 90s on the news of its newfound cash, said Tom Haag, portfolio manager at Lutheran Brotherhood.
Moreover, the two other main high yield issuers in the sector, Teligent and Winstar Communications, also saw renewed interest last week.
Teligent, which was yielding 650 basis points over Treasurys a couple weeks ago, saw some tightening when its largest shareholder, Associated Group, was bought by Liberty Media Group in a stock deal worth $2.8 billion. Liberty is owned by AT&T.
Teligent's stock, which started out hot in 1997 after its initial public offering but was punished last year by investors, increased by about 14% on the stamp of approval, sources said. It was at $54 a share after the news; last year, it was trading in the low 30s.
The big difference in these companies and the wireless players such as Sprint, AT&T and Bell Atlantic is a "fixed platform" instead of a mobile one. That simply means that the communication goes from antenna to antenna and then subsequently to the user's phone, instead of going directly to the phone. As such, the fixed platform has more capacity.
The companies in the broadband sector have few customers and few assets, but the one thing they do own has become a hot commodity - a license to do business in the telecom sector. And the investor interest comes simply as one more way to get around the regional phone companies, which is the underlying strategy is much of what telecom's high yield issuers are doing these days.
It is a common school of thought that when the Bells are finally let loose on the long distance industry, they will sweep in and take over; thus, the others are doing everything they can to build systems and market share now, analysts said.