In an industry of end games and take-outs, NEXTLINK Communications Inc. (www.nextlink.com) is one player that may be in for the long haul.
"They were slow to get into data but boy, have they jumped on that," says Terry Barnich, president of New Paradigm Resources Group Inc. (www.nprg.com). "They're covering the [access technology] lot from wireline fiber, to DSL, all the way to wireless local access and satellite. It's fair to say that at the end of the day NEXTLINK will be standing. I rank them in that handful of companies that will decide their own destinies."
It was a busy end of the century for NEXTLINK, founded by cellular pioneer Craig McCaw, who owns a controlling interest in the company:
-It moved its headquarters from Bellevue, Wash., to McLean, Va.;
-It signed on a new CEO, Dan Akerson; a new president and COO, Nate Davis; and a new CFO, Mark Gunning;
-Along with Canadian partners, it won licenses for fixed wireless spectrum in Canada;
-NEXTLINK, which owned 50 percent of INTERNEXT LLC, announced its intention to buy the rest of the company for $220 million in stock. INTERNEXT has contracted with Level 3 Communications Inc. (www.level3.com) to build a 16,000 route-mile, IP-based, fiber optic network. Under the agreement, INTERNEXT receives 24 fibers (in each of the five conduits), one 1.25-inch empty conduit and rights to 25 percent of any fibers in any subsequent conduits over five for the entire length of the Level 3 network;
-Finally, Forstmann Little & Co., a prominent New York investment house with an eclectic portfolio, invested $850 million in NEXTLINK.
Through it all, the company has continued to build out its network and deliver service, and Wall Street has applauded steadily. Though NEXTLINK faces challenges, its stock price rose steadily through 2000, from $11 3/16 per share at the beginning of the year to more than $83 per share at Christmas.
"By developing and implementing new processes, products and strategies, this senior management team will continue to leverage NEXTLINK's already strong position to scale the company to directly challenge industry titans like AT&T (Corp., [www.att.com]) and (MCI) WorldCom (Inc., [www.wcom.com])," writes James Henry, senior managing director at Bear, Stearns & Co. (www.bearstearns.com) in reiterating his company's "buy" recommendation for NEXTLINK.
"Strategically, this is why they get the valuations they do," says John Hodulik, senior telecom analyst at PaineWebber Inc. (www.painewebber.com). "They have all the pieces in place to have a big impact down the road once those networks are in place."
The pieces Hodulik refers to are physical, managerial and ... well, what might be called psychological.
The physical assets all add up to bandwidth.
"Start at the edge of the network," Hodulik says. "There's fixed wireless, probably with a healthy dose of DSL mixed in. Then there's fiber optic infrastructure in local markets; all wrapped together with what has become a tremendous amount of capacity from the INTERNEXT network. They have long-haul capacity that, once built out, rivals what Winstar (Communications Inc. [www.winstar.com]) has. ... The company is bandwidth heavy."
As of the end of 2000, NEXTLINK serves 48 markets with 31 networks. The company expects to serve 60 markets by the end of this year using a combination of wireline and wireless assets.
At a time when wireless spectrum is highly valued, NEXTLINK is the largest holder of fixed wireless spectrum in North America, with licenses covering 95 percent of the population in the top 30 markets in the United States.
It got part of that spectrum through its purchase of WNP Communications Inc. in April 2000 for $542 million, plus $153 million in fees to the FCC. WNP was among the winners of spectrum in the FCC's "C" block auction in 1996. NEXTLINK was initially in the bidding, but backed away when the bidding went higher than its management thought was sensible. Eventually, many successful bidders found they couldn't pay for their licenses and went under.
NEXTLINK also paid $138 million to Nextel Communications Inc. (www.nextel.com) to acquire LMDS licenses.
"The biggest challenge we've got right now is the slowness of LMDS multipoint suppliers," Doug Carter, NEXTLINK's chief technical officer, says. "They are still ... I don't know if plodding is the right word, but they've still got work to do to get over our standard bar. They're clearly going to get there, but I'm less than overwhelmed with their progress in the last two quarters of this year."
NEXTLINK is widely lauded for meeting quarterly expectations, its marquee management and its ability to attract investors. In 2000, NEXTLINK raised about $3 billion, including a secondary offering of stock, some high-yield debt offerings and Forstmann Little's $850 million.
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Source: NEXTLINK Communications Inc. (www.nextlink.com)
"They're going to continue to need substantial amounts of capital from capital markets," says PaineWebber's Hodulik. "They're going to spend $1.5 billion in capital expenditure [in 2000], and probably another $1 billion to $1.5 billion the following year. ... It's still a new company, technologically. Fiber rings, hub sites, target building antennas, connecting those with the INTERNEXT fiber, the dark fiber, that all requires some cash."
This has an understandable impact on NEXTLINK's bottom line. Ask Todd Wolfenbarger, NEXTLINK's vice president-corporate communications, when his company will be EBITDA (earnings before interest, taxes, depreciation and amortization)-positive, and he points out that within 30 months of launching a city, NEXTLINK cities are EBITDA-positive. Analysts acknowledge that this is true so far, and expect it to continue. Most expect the company itself to be EBITDA-negative until the end of next year, perhaps the first quarter of 2002.
