Rural Carrier NTelos Gets Boost From 3G (Investor's Business Daily)
Reinhardt Krause 2 hours, 22 minutes ago
Wireless rules at rural phone company NTelos Holdings.
Shares in NTelos (NasdaqGS:NTLS - News), which is upgrading its wireless phone network to the latest 3G, or third-generation, technology, have jumped 62% since late February, despite falling 3.5% Tuesday in a terrible day for the stock market.
NTelos on Aug. 7 raised its guidance for 2008 cash flow, boosting its shares. NTelos says it expects 2008 adjusted earnings before interest, taxes, depreciation and amortization to be about $226 million, up 11.3% from 2007. Its earlier guidance was for 7.6% growth.
The raised guidance has some analysts expecting a hike in dividends paid to shareholders, says David Dixon, an analyst at Friedman, Billings Ramsey & Co.
"The stock has had a good run, but some significant catalysts may still lie ahead," he said, referring to a potential dividend increase.
NTelos sells wireless services under its own name in parts of Virginia and six other states. While NTelos has about 426,000 wireless customers of its own, it also gets revenue from leasing its wireless network to Sprint Nextel (NYSE:S - News), the nation's No. 3 mobile phone carrier.
Under terms of its wholesale deal with Sprint, NTelos has been upgrading its wireless network to EV-DO, short for evolution-data optimized, a 3G technology.
Boosts Network Spending
The upgrade is expected to boost NTelos' wholesale revenue from Sprint, and lift NTelos' own data revenue from its wireless customers.
By year-end, NTelos expects about 98% of its wireless network included in the Sprint wholesale deal to be upgraded to 3G technology. Overall, about 55% of NTelos wireless network will be 3G capable by year-end, analysts say, up from 20% in June.
The EV-DO rollout will drive NTelos' cash flow, Dixon says.
"They've raised EBITDA guidance significantly for 2008," he said. "About 76% of their revenue is wireless. That's the key driver going forward as data usage expands with the 3G build-out."
NTelos plans to spend almost $90 million on its wireless network in 2008, up 12.8% from $77.6 million in 2007. About 43% of that will be 3G related.
With NTelos' landline phone business struggling, wireless is its growth engine, analysts say.
In the quarter ended June 30, NTelos reported revenue of $131 million, up 5.6% from a year earlier but just below analyst estimates. Wireless revenue climbed 7% to $100.1 million, but wireline revenue rose only 1% to $30.7 million.
NTelos said it lost 4% of its home phone lines as residential customers switched to wireless and cable TV services.
The company garners about 25% of its wireless revenue from the Sprint wholesale deal. When NTelos completes the EV-DO upgrade, its guaranteed quarterly revenue from Sprint will rise, Dixon says.
NTelos stands to benefit as Sprint customers that roam on its wireless network use more data products, such as Internet access and music downloads. Sprint pays NTelos for data downloads by the megabyte.
Average data transfer speeds on the EV-DO network are about 900 kilobits per second, about nine times faster than NTelos' older network.
Analysts expect NTelos' own wireless data revenue to increase as well. NTelos gets about $54.60 in average monthly revenue per wireless user. ARPU is a closely-watched metric. About 13% of that, or $7.17, comes from data products. Average monthly data revenue among all wireless firms is about $12, analysts say.
'Room For Significant Growth'
"As NTelos expands 3G service, data ARPU should see a significant lift. There is room for significant growth," said Wachovia analyst Gray Powell in a recent note to clients.
Wireless subscriber growth at Waynesboro, Va.-based NTelos has slowed, however. NTelos added 4,615 wireless subscribers in the second quarter, 43% fewer than the 8,000 it added in the year-earlier period, says Dixon. It was fewer adds than analysts expected.
Still, analysts are upbeat about NTelos' wireless business.
NTelos hiked its dividend in October 2007.
On its earnings call Aug. 8, NTelos Chief Executive James Quarforth said another hike is possible. He also said the company is also investing in areas besides EV-DO to spur growth, such as landline fiber.
"Even in light of record level capital spending this year, we're still generating (more) cash," he said at the time. "And so that would suggest that there's opportunities for the board to evaluate the dividends."
The company didn't return phone calls seeking comment for this story.
Dixon says NTelos is not a takeover candidate. Some analysts in general have speculated of takeovers ahead involving small wireless firms. Verizon Wireless completed its purchase of Rural Cellular last month.
But NTelos' stock "is trading on the fundamentals, not a potential roll-up," Dixon said.