Nextel Predicts 2005 Rebanding Cost of $800 Million
Nextel said Thurs. it expects to spend $900 million in 2005 as it begins to implement the 800 MHz rebanding plan, approved by the FCC last year, which will eat up much of the company’s projected $2 billion free cash flow. About $600 million will be spent on new capacity sites, filters and working with public safety radio systems and $300 million to relocate broadcast auxiliary users and microwave incumbents from 1.9 GHz to 2.1 GHz, Nextel officials said on a call with analysts discussing 4th- quarter results.
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Nextel said Thurs. it would expand its Boost brand, targeting youth customers, nationwide. During the 4th quarter, Boost added 360,000 subscribers to bring its totals to 1.2 million. Boost, a partnership with Boost Mobile of Australia and New Zealand, was launched in 2002 in Cal. and Nev. in a significant departure from Nextel’s previous focus on business customers. Nextel predicted on a conference call that 1 million of its projected 2.9 million new subscribers in 2005 will be Boost customers.
Exec. Vp Tom Kelly said he saw room in the market for Boost and Virgin Mobile, a joint venture partly owned by Nextel merger partner Sprint. “We're very pleased with the growth of Boost,” he said. “Boost and Virgin together today… probably have 75-80% of the total pre-paid market. There’s obviously plenty of room for both plans. We believe that Boost is a much more life-style oriented brand that has a very specific appeal that is, I think, even different than Virgin Mobile.”
Nextel officials also said on the call that while a test of Flarion’s flash OFDM technology in N.C. was successful “on just about every measure,” Nextel has “no intentions” of a rollout at this time. Instead, officials said they'll concentrate on CDMA technology based on the 1X EV-DO network upgrade already being implemented by merger partner Sprint. Nextel provided guidance on Flarion in answer to an analyst query.
Nextel recently indicated it would end the N.C. test in June. Nextel said when it launched the test that Flarion technology offers a relatively high data rate at greater spectral efficiency and was cheaper to implement than comparable 3G technologies. The Flarion trial involved about 3,000 customers using a network of 130 base stations.
Nextel, which expects to complete a merger with Sprint in the latter half of the year, reported as expected that earnings had declined over the year-earlier quarter -- to $471 million, or 41 cents a share, from $631 million, or 55 cents. Analysts had predicted earnings of 39 cents a share. Revenue increased to $3.58 billion from $3.01 billion. For 2005, Nextel Thurs. predicted adjusted earnings of $1.87 a share, which is about 6 cents below the Thomson First Call consensus.
Nextel projected $2.6 billion in capital expenditures in 2005, up slightly from $2.35 billion in 2004. Capex will include $1 billion in switching and other core network improvements, $650 million to fund 2,300 new cell sites and $400 million on other projects, including a new IP-push-to-talk technology. Nextel also said it would add 8 handsets to its 12 handset line up during 2005. Nextel also said its push-to-talk technology is growing in popularity, accounting for 270 million direct-connect calls per day.
CEO Timothy Donahue said Nextel-Sprint will emerge as an important player, based on 2005 data. Donahue said the 2 accounted for 1/3 of new subscribers among the national carriers and 29% of service revenue and generated 31% of operating income before depreciation and amortization (OIBDA). “What these faces tell me is that wireless use and profitability are thriving,” he said. “We continue to take a greater share of telecommunications spending.”