NII Holdings Holding Its Own As 3G Looms

[al904]

NII Holdings Holding Its Own As 3G Looms

Investor's Business Daily via Yahoo! News, by Reinhardt Krause, Feb 4, 2010

Wireless service provider NII Holdings seems to be fighting a David-vs.-Goliath battle in Latin America.
Or maybe not. By focusing on a niche -- high-end business customers -- NII has so far avoided a direct clash with two industry giants.

With 7 million customers in Latin America, NII Holdings is dwarfed by No. 1 America Movil's 181 million and No. 2 Telefonica's 129 million.
Still, NII Holdings claims an edge over those rivals: higher average monthly revenue per user, owing to the fact that NII Holdings focuses on small-business and corporate clients rather than consumers.

"NII hasn't really been about going head-to-head with the big guys," said Wally Swain, a Yankee Group analyst. "NII is committed to the enterprise market and quality service. The difference is who they have as customers. NII has very high ARPU, over $40, vs. $10 for America Movil."

Through Sept. 30, NII Holdings reported ARPU of $46 compared with America Movil's $11.50. NII plans to release fourth-quarter results on Feb. 25.
NII shares rose 85% in 2009 but are down about 4% this year. But how long can a little guy like NII keep winning against two giants?

Acquiring more spectrum and building out third-generation wireless networks looms as NII's biggest challenge. The company will need to spend around $3 billion on 3G licenses and network gear over the next few years, analysts say.

Credit Suisse analyst Andrew Campbell downgraded the stock to underperform because of the looming hike in capital spending.
"While the 3G overlays may be a strategic necessity, the heavy investment cycle should lead NII to be sharply FCF (free cash flow) negative and depress margins," Campbell wrote in a research note.

Campbell said it would be expensive for NII to build 3G networks in Mexico and Brazil, Latin America's two biggest markets.

Brazil has been a bright spot for NII. Its third-quarter revenue in Brazil rose 40% in local currency and 25% in U.S. dollars.

Investing in Brazil would be a good move for NII, says Stifel Nicolaus analyst Christopher King, pointing out that the nation will host the 2014 World Cup and the 2016 Summer Olympics.

Mexico is expected to auction off radio spectrum in May. Brazil should follow this year or in 2011. Besides those markets, NII plans to roll out 3G in Chile and Peru.
The company has no choice but to plow ahead with 3G, analysts say. NII Holdings needs to migrate to new wireless technology. NII is a spinoff of Nextel Communications, which merged with Sprint in 2005. Nextel had operated a wireless network based on the otherwise little-used iDen technology.

Sprint Nextel has been phasing out investments in its iDen network. Motorola, which is the only maker of iDen phones, has been struggling. IDen networks don't provide much bandwidth or speed for data services.

"IDen has many challenges," said analyst Swain. "It's getting long in the tooth. It behooves NII to have a Plan B. That's why they're looking at 3G and getting spectrum."

Swain says that with a 3G network NII could sell data connections for laptop computers. That's a fast-growing business in Latin America, where the availability of fixed-line broadband is limited to urban areas.

=