AT & T Wireless Services Inc.: Updates Benchmark Report

Chris Diceman, CFA, Rory Buchalter, CFA / 416-593-5577 ext. 2242, ext. 2268 /  cdiceman@dbrs.com

 

AT&T Wireless Services Inc. (“AT&T Wireless” or “the Company”) is the third largest wireless carrier in the U.S.  The Company operates a wireless network that covers nearly 80% of the U.S. market, and is 16%-owned by NTT DoCoMo of Japan.

 

The Company saw strong subscriber growth in 2001 (20%) as it added nearly three million subscribers to end the year with 18 million subscribers.  This subscriber growth pushed EBITDA to $3.1 billion in 2001.  Over the next, year the Company is expected to experience the majority of its EBITDA growth from further subscriber growth and additional cost savings.

 

However, handset subsidies, as well as service and marketing costs, are expected to remain significant (albeit on a declining basis) as the Company transitions its subscribers to GSM/GPRS while continuing to operate its TDMA platform.  This will be a delicate balance for the Company, as it must not ignore its TDMA subscribers.  If these subscribers are not fully supported or feel pressured to upgrade to newer handsets, they could turn over and push churn up over 3%.

 

Acquisitions are also expected to significantly increase the Company’s subscriber base over the next year, with  (1) industry consolidation, and (2) the FCC’s 30-day approval process that led to the early closure of the TeleCorp acquisition (adding nearly 920,000 subscribers).

 

DBRS is estimating capex levels to be in the $5.3 billion to $5.5 billion range over the next year as the Company focuses on (1) upgrading the remaining 55% of its network to GSM/GPRS, (2) integrating and upgrading TeleCorp.’s footprint, and (3) expanding on its 80% coverage of the U.S. market.  Capex levels are expected to create a free cash flow deficit that could reach $2.5 billion for 2002. 

 

The Company does have good liquidity, with about $11.1 billion in available funds, and part of it likely earmarked for its contingent $2.6 billion obligation of NextWave spectrum.  The Company’s net debt levels could rise to nearly $8.4 billion in 2002 (from $3.4 billion in 2001) as it uses its strong balance sheet to finance growth in its subscriber base and network expansion.

 

 

Dominion Bond Rating Service Limited (DBRS) has published a full report that provides additional analytical detail.  To see this report, please click on http://www.dbrs.com/web/sentry?COMP=2900&DocId=106740.  If you do not have access to this document, please contact us at info@dbrs.com.