24/7 Wall St.

Sprint (S) Rises Aloft On Wild Rumors

Sprint (S) has traded about ten times its normal volume with over 261 million shares changing hands. The market is ablaze with rumors that the cellular carrier will cancel its plan to raise $3 billion in the open market and take the money from Korean company SK Telecom instead. SK has been trying to get in the front door at Sprint for over a year.

There is no reason to believe that shareholders will get diluted any less if the money comes in as a convertible sold to the public or as a direct investment from SK.

It is a nice way from people to get sucked in at a relatively high price only to see the stock drop later.

Douglas A. McIntyre

Vonage Creeps Up (VG)

New management over at Vonage Holdings Corp. (NYSE: VG) is going to have its hands full.  The independent VoIP telephony leader did post a narrower loss on expense management.  Its $7 million loss came to -$0.04 EPS (GAAP)as revenues gained 11% to $228 million.  Its adjusted operating income did come in at $12 million versus last year's -$18 million defecit.

Gabelli Enters SPAC IPO Game (GBL, VZ)

Last night there was a filing from Gabelli Entertainment &  Telecommunications Acquisition Corp. to come public via an initial public offering for a special purpose acquisition company (SPAC) or a blank-check company. This is for a sale of $200 million in units with each unit consisting of 1 share of common stock and one warrant with a $7.50 strike price.  This has ties to GAMCO Investors Inc. (NYSE: GBL) and even to Verizon Communications (NYSE: VZ) via an ex-CFO.

Palm's Centro Leads Shares (PALM, S, VZ)

Palm, Inc. (NASDAQ: PALM) has not been without its problems.  But there seems to be a saving grace here with strong unit sales.  The Palm Centro has now reached its 2-millionth unit sold.  It seems that the market place's desire to get smartphones is adding to the love, particularly for the $99.00 price tag for a strapped consumer in a tough economy.

The Centro is also now in 25 countries.  At first this was exclusive to Sprint Nextel (NYSE: S), but over the last two or three weeks it has become available for sale via Verizon (NYSE: VZ) as well.

Alcatel-Lucent's (ALU) CEO-For-Life Walks Toward The Sunset

Alcatel-Lucent (ALU) CEO Pat Russo survived a string of quarterly losses and catastrophes at her company that would have put a lesser person down. She remained bloodied by unbowed as ALU reported tremendously poor results and made repeated missteps. The firm reported a loss of 1.1 billion euros ($1.73 billion) for the second quarter, or $.77 U.S. a share, wider than the 586 million euros reported last year.

Russo could no longer cheat the hangman.

Level 3 Becomes a Leveraged Sentiment Proxy (LVLT)

Level 3 Communications Inc. (NASDAQ: LVLT) is seeing shares under pressure today after its quarterly earnings report.  What is interesting is that nothing has really changed on the micro-level since the stock was much higher and after the open we were up almost 4% at $3.69.  But the negative market bias today is going to potentially change how Level 3 is viewed in the coming days and weeks as you will see in our additional earnings commentary and our own analysis below. 

ETF Launch: International Telecom Sector From State Street (STT, IST)

State Street Corporation (NYSE: STT) announced that its State Street Global Advisors unit is launching 10 new SPDR exchange-traded funds, which are supposed to begin trading on the American Stock Exchange today.

SPDR(R) S&P(R) International Telecommunications Sector ETF (AMEX: IST)       

• This index includes more than 70 non-US telecommunications companies with market caps of at least $100 million.

These ETF's are benchmarked to a series of the S&P(R) World ex-U.S. Broad Market Indices, which are market cap weighted with only non-US holdings.  The expense ratio on each of these ten ETF's is listed as 0.50%.

Jon C. Ogg
July 22, 2008

R-I-M Takes a Downgrade (RIMM)

Research-In-Motion Ltd. (NASDAQ: RIMM) is seeing shares trade lower this morning in pre-market trading.  The Blackberry Smartphone maker saw its shares downgraded this morning as shares were cut to "Underperform" from Hold at Needham. 

Shares were indicated down 1% before 8:00 AM but shares are now down about 2% at $103.75 and we have seen an increase in pre-market trading. With shares nearly down 1/3 from their 52-week highs, this might already be a little more buffered or insulated from a major reaction like we might have seen even a month ago.

Jon C. Ogg
July 16, 2008

Sprint About To Be Acquired? (S, SKM)

Sprint Nextel (NYSE: S) just saw a rather large surge in volume as per our report at Volume Spike (VSInvestor.com).  We saw a surge in trading and price based upon a CNBC report from David Faber that SK Telecom (NYSE: SKM) is in talks to potentially acquire the ailing telecom.  This is one of the top brands we predicted could disappear as we know it at the beginning of the year.  In fact, we noted back that that SK Telecom had already approached the company.

Faber was very clear that there are no definite terms signed and that a deal is not imminent and potentially weeks away.  SK Telecom is actually smaller, so this might also involve private equity or other partners. 

Shares spiked 9% on the CNBC report, and are now up over 13% on more than 30.5 million shares having traded hands.  Its 52-week trading range is $5.48 to $22.64 and its average daily volume is about 34 million shares.

As a reminder, until something official or quasi official materializes, all such reports are to be considered rumors.

Jon C. Ogg
July 15, 2008

Vonage & Comcast Work On Standards (VG, CMCSA, CMCSK)

Comcast Corporation (NASDAQ: CMCSA) (NASDAQ: CMCSK) and Vonage Holdings Corporation (NYSE: VG) have announced a collaborative agreement this morning to address "the reasonable network
management of Internet services."

Comcast committed to work together with Vonage to ensure that network management techniques are chosen that effectively balance the need to avoid network congestion with the need to ensure that over-the-top VoIP services like Vonage work well for consumers.

Keep in mind that this is more of a protocol working arrangement for open standards or "platform-neutral" rather than a contract collaboration.  It might be more of confederacy than anything solid.  Comcast has announced other collaborations with BitTorrent, Inc. and Pando Networks, as well as participation in the P4P Working Group and elsewhere.

This isn't even helping Vonage stock today.  Shares are down 3% at $1.55 right after the open.

Jon C. Ogg
July 9, 2008

Sprint's (S) New Marketing Campaign: Whipped Cream On Dung

Sprint (S) has taken to the airwaves to try to keep customers and get old customers back. The marketing effort ignores that fact that Sprint has, by some measurements, the worst customer service of any large company in the US. Not just phone company. Any company.

Sprint does have a nifty new Apple (AAPL) iPhone knock-off called the Samsung Instinct. It is selling well and should bring in a few new customers. But, that is the extent of it.

As The New York Times points out, Sprint's two larger competitors, AT&T (T) and Verizon Wireless "are recruiting Sprint customers who have grown tired of years of inattentive customer service and a lackluster array of cellphones." TV commercials are not going to help that.

Sprint could take the millions of dollars it is spending on useless advertising and put that money into customer service. It could offer customers with real complaints a free month of service or a free phone. It could do something that might really matter to a subscriber thinking of leaving Sprint.

The ad campaign should simply say "Come Back, We Love You", and we are willing to give you something of value to rejoin use as a customer.

Of course, that would be too obvious.

Douglas A. McIntyre

AT&T (T) Pricing For Apple (AAPL) iPhone Kills Sprint (S)

Whether AT&T (T) makes a lot of money on the new Apple (AAPL) iPhone may not matter to Sprint (S).

What does matter is that the market thinks the No.3 cellular provider in the US is going to lose more subscribers.

Even with its new Samsung Instinct, investors clearly believe that AT&T is offering an iPhone subcriber plan attractive enough to take customers from Verizon Wireless and Sprint. Because Sprint's base has been eroding since the NexTel merger and the company is know for its poor customer service, it may have to cut prices on the Samsung product just to stay competitive.

Sprint is down 8% on the AT&T pricing news.

Douglas A. McIntyre

Earlybird TMT Analyst Calls (ADBE, AEIS, ASML, CLWR, DT, LRCX, MVL, TI, VRGY, YHOO)

These are the early bird calls we are seeing in telecom, media, and tech:

• Adobe Systems (NASDAQ: ADBE) raised to Overweight from Equal Weight at Morgan Stanley.
• Advanced Energy Industries (NASDAQ: AEIS) raised to Buy from neutral at Goldman Sachs.
• ASML Holding NV (ASML) Raised to Buy from Neutral at Goldman Sachs, but slight lowering of estimates.
• Clearwire (NASDAQ: CLWR) raised to Hold from Sell at at Citigroup.
• Deutsche Telekom (NYSE: DT) raised to Overweight from Equalweight, but target cut to EUR13 from EUR 14.50.
• Lam Research (NASDAQ: LRCX) raised to Goldman Sachs Conviction Buy List from Sell at Goldman Sachs.
• Marvel Enterprises (NYSE: MVL) raised to Outperform at RBC.
• Telecom Italia (NYSE: TI) raised to Outperform at Bernstein.
• Verigy (NASDAQ: VRGY) removed from Goldman Sachs Conviction Buy List on valuation.
• Yahoo! (NASDAQ: YHOO) Downgraded to Underweight from Market Weight at Thomas Weisel.

Jon C. Ogg
June 24, 2008

Sprint (S): From Dire To Desparate

Turning around Sprint (S), which has been getting harder, may be moving into the "impossible" column. The company recently showed up in the MSN Money customer satisfaction survey as one of the ten worst in the US. Thirty-nine of the respondents rated Sprint customer service as "poor".

Now it looks like fewer and fewer people want to do business with the cellular provider. New research from Changewave shows that of 3,597 consumers the firm polled in March, "only 11% said they currently use Sprint as their provider – a number which pales in comparison to Verizon (VZ; 31%) and AT&T (T; 28%)."

The research went further to show that "when we asked Sprint customers how likely they were to change service providers in the next 6 months, a relatively high percentage (21%) said they’re Likely to switch – compared to just 10% of Verizon customers and 11% for AT&T’s."

Things won't get better at Sprint and its new WiMax network will not be finished until near the end of the decade. It is hard to imagine how the company will hang on for that long.

Douglas A. McIntyre

Verizon (VZ) Ups Broadband Speed, But Who Will Know?

Verizon (VZ) is going to make its FiOS fiber-to-the-home product deliver even faster broadband speeds. It is hard to imagine that their customers will even know.

The new product will run at 50 Mbps. According to The Wall Street Journal, "a person could download a high-definition movie in 13 minutes."

But, how many people really want to do that.

The broadband connection speed war between cable and TV companies is escalating. That means that the firms will add billion of dollars to capex to "keep up with the Jones".

For most people, a fast connection allows them to watch video and get web pages loaded quickly. Receiving high-def films to watch on a PC screen is probably never going to be a big business.

But, the future is coming, so Verizon might as well dump money into the project in case anyone cares.

Douglas A. McIntyre

Alcatel-Lucent Scores $1 Billion Chinese Order (ALU)

Alcatel-Lucent (NYSE: ALU) announced after the close that it has signed a $1 Billion (one billion dollars) framework agreement for 2008 with China Mobile where it will provide mobile communication equipment and services to Chinese mobile giant. 

The agreement was secured through Alcatel-Lucent's flagship company in China, Alcatel Shanghai Bell.  Alcatel-Lucent will provide China Mobile with the following:

• mobile core network solutions,
• wireless network solutions,
• TD-SCDMA equipment,
• applications,
• transmission & IP router equipment,
• and the related services.

As far as $1 Billion and how that relates to 2008, First Call has estimates for the telecom equipment company projected north of $26 Billion for the entire fiscal 2008.

Alcatel-Lucent closed up 1.6% at $6.73 along with tech shares today in regular trading.  Late after-hours trading has the stock up roughly 4% at $7.00, although listed volume and this far into after-hours may be very different than tomorrow.  Its 52-week trading range is $5.08 to $14.57.

Jon C. Ogg
June 16, 2008

Safaricom Soars in Kenya IPO (VOD, GAF, EZA, TRAMX)

Today was a feature we have loosely been covering on occasion, and that is investing on the final frontier here on Earth: Africa.  Interestingly enough, Vodafone Group plc (NYSE: VOD) is tied into this company with ownership.

Kenya's IPO of a 25% stake in Safaricom saw high enough demand that it's IPO was oversubscribed by the tune of almost 5-times.  Its value was about $800 million depending on which currency conversion dates you use.  This was offered at a price of 5 shillings (close to $0.08), and shares closed on the first day at 6.95 shilling on the local market after hitting a high of around 8 shillings.  This closing price gives the closing value via market capitalization of about $4.5 Billion.

Safaricom is the nations largest mobile telecom operator with over 10 million users, which sells airtime for as little as pennies and allows micro-payments to purchase small increments in airtime.

This had unfortunately seen its IPO delayed, and more peaceful times allowed the demand to surge.  Whether or not the coalition holds up or not, well all we can say it that it is Africa and political instability is all part of the risk and reward equation there.  The success of this IPO may lead to several other IPO filings and other pricings in other infrastructure stakes in the East Africa nation.

Vodafone owns a 40% stake in the offering via its Kenyan unit called Vodafone Kenya Ltd.  Before the IPO the government owned some 60% of the company, and its stake has now been reduced down to 35% after one-quarter of the company was sold off to the public.

Interestingly enough, there are reports that many locals and first time investors were disappointed and many had borrowed money to buy shares.  The extent of that isn't yet formalized and may not be known for several days.

So why are we covering an African IPO, particularly with all the political and event risk in most African nations?  The answer is simple: this is the last true emerging and pre-emerging spot on the globe.  It is a total and complete maze for investors to participate in the investment of Africa's development because of the questions around corruption, cross-border issues, famine, disease, poverty, and on and on.  That is also the greatest shot for long-term gains if and when the risks in Africa become mitigated even a fraction compared to today.

In the start of January 2008, we offered 3 ETF's and mutual funds that American investors can use to invest in the development of Africa and gave a more detailed explanation of each.  The funds were T. Rowe Price Africa & Middle East (TRAMX), iShares MSCI South Africa Index (NYSE: EZA), and SPDR S&P Emerging Middle East & Africa (AMEX: GAF).  These are not for widows and orphans, nor are they for the chicken-hearted.  As more and more opportunities arise for US investors to invest in Africa, we'll be covering it.

You can join our open email distribution list to hear about other developments in IPO's, secondary financings, spin-offs, mergers, and other special situations.

Jon C. Ogg
June 9, 2008

Analyst: Nortel At $23.00... Gutsy or Crazy? (NT)

A Canadian boutique firm called Paradigm Capital Inc. issued a rather extremely bold call on Nortel Networks Inc. (NYSE: NT) this morning.  Paradigm noted how unusually low the valuation is on the stock with a $4 Billion market cap after a near-70% drop over the last year, which he calls low compared to its $11 Billion in revenues.  The call also noted how Nortel is about to get a $2.4 Billion global class action settlement behind it, which he believes will remove a significant overhang.

What is perhaps more gutsy than just coming out with strong comments on strengthening first quarter metrics is the actual formal rating itself.  Paradigm not only issued a BUY rating, but the call is for a $23.00 price target.

We recently called Nortel one of the turnaround stocks that hasn't turned around.  That doesn't mean it can't turn around, but they just haven't been able to drum up the turnaround.  If Nortel can hit its forward estimates this year or next then he is right about the stock being a cheap one.  But if it lives up to the same status quo and continues to disappoint then this one may stay in the dungeon.

We did put a call into Paradigm Capital and received verbal confirmation about the Buy rating and $23.00 price target.

First Call has Fiscal 2008 estimates at $0.55 EPS on $11.2 Billion in revenues, and 2009 estimates are $0.92 EPS on $11.6 Billion in revenues.

When you see calls looking for a 200% gain in a turnaround stock, its hard not to notice.  This call is either one of the gutsiest calls that could be made.... or one of the craziest.  So far Wall Street isn't fighting the tape as Nortel shares are down 5.5% at $7.67 right before the close.

Jon C. Ogg
June 6, 2008

Level 3 (LVLT): Overbought Stock Of The Year, Or Will Company Be Bought?

It made some sense for Level 3 (LVLT) to be up yesterday. It was. It moved from $3.53 early on June 3 to $4.07 yesterday.

LVLT did sell its publishing business for $129 million, but that was expected.

Today, the stock is up to $4.48 on almost 90 million shares. On a good day it clears 24 million.

As 24/7 Wall St. pointed out yesterday, JP Morgan may have made some good comments about the company, but that would not account for a spike that has taken it to a level approaching three times its 52-week low of $1.68. The one call that also helped was UBS raising its price target, although its rating was maintained as Neutral. 

LVLT has said it will break even this year, but the company says that every year.

The firm does have a huge short position of 238 million shares as of the last time the NYSE posted numbers.Would that drive the shares up almost 14% in a day? Probably not.

No one should be astonished if a buyer is having a look at the goods. LVLT does have $6.8 billion in debt, but its market cap is only $6.8 billion.

Since the company is trading for less than three times revenue on a market value plus debt ratio, there could be a buyer.

Douglas A. McIntyre

Verizon And Alltel: Too Much Power In Two Sets Of Hands

Word from Vodafone (VOD), which owns part of Verizon Wireless, and other sources is that Verizon is looking at a purchase of Alltel, another cellular carrier. TPG Capital and Goldman Sachs Capital Partners own Alltel now.

According to the FT, "Adding Alltel’s 13.2m subscribers to Verizon Wireless’s 67.2m would create the largest wireless carrier in the country." The Justice Department, which spends its time vetting things like the Sirius (SIRI) merger and Microsoft's (MSFT) antitrust activity, probably won't look at the Verizon deal at all. But, maybe it should.

The wireless industry in the US is down to two companies--Verizon Wireless and AT&T (T). Earlier this year, both companies set $99.99 unlimited voice and data plans. Sprint (S) and T-Mobile had to come up with plans to best or match that, whether it was good for them financially or not.

For about $27 billion, Verizon Wireless can put the No.2 carrier and No.5 carrier together. Sprint's entire market cap is $26 billion, which shows how much Verizon is willing to spend to further corner the market.

Verizon would make the argument that Sprint and T-Mobile are true competition. But, Sprint is on life support and loses customers every quarter, and T-Mobile is too small to matter in a market where Verizon and AT&T will have two-thirds of the market.

When competitors have no pricing leverage and one deal can take over 10% of the competitive capacity out of the market a duopoly is all that remains.

Douglas A. McIntyre

Verizon, Alltel, TPG and Goldman Sachs (VZ, GS, T, VOD)

Alltel may soon be acquired by Verizon Communications Inc. (NYSE: VZ), according to a breaking news report from CNBC's David Faber.  Faber just noted that the companies are in advanced talks to acquire the current private equity held Alltel by TPG and GSCP, which are Texas Pacific Group and Goldman Sachs Capital Partners.... part of Goldman Sachs (NYSE: GS).

Alltel went private last year and has somewhere in the vicinity of 13 million wireless subscribers.  The value of that deal was in the $27 to $27.5 billion range, and interestingly enough this new deal may not be at any or at much of a premium to that price.

If there is any company that can acquire this and not have all the credit rating issues and not run into multiple bank debt issues like private equity, then it is Verizon.  There are a couple of other players like AT&T (NYSE: T) or some foreign-owned carriers that could swing it too.

Verizon currently has a market cap after a 1% drop to $36.91 of around $105 Billion.  The one question that would truly come from this is if it would have any impact on the Vodafone (NYSE: VOD) stake in Verizon Wireless that has been a perennial rumor that something will happen there.

You can join our open email distribution list to hear about secondary offerings, mergers, special financings, IPO's, restructurings, and other special situations.

Jon C. Ogg
June 4, 2008

Explanation of Level 3 Communications Volume & Price Surge (LVLT)

It has been hard to not notice the movement and trading activity in Level 3 Communications Inc. (NASDAQ: LVLT).  This set up an alert for us over at VOLUME SPIKE earlier this morning and we wanted to do some digging since this is one of the more stocks and frequently covered on our "10 Stocks Under $10" newsletter.

This was looking like a head-scratcher if you only looked at the headlines available on the surface and overlay them with the trading volume and movement from yesterday and this morning.   Yesterday we noticed a 2-times volume day with an 8% rise to $3.74.  Then this morning we have seen a sharp move with another 8% gain to $4.04 after 90-minutes of trading.  Shares have come back off a bit and are at $4.00 on lst look.  While the volume is already almost 17 million shares (24.6 million average daily volume) it isn't off the charts for this stock.  So we wanted to dig further.....

There are two things that account for this.  First and foremost, a JPMorgan analyst has been reported as making positive comments with a $5.00 valuation.  We have not gotten that full note nor any of the details, so we are just treating that as hearsay until that is better described at the source.  There was a note yesterday that UBS had reiterated its "Neutral" rating.

More importantly, the company made a presentation yesterday at at the Oppenheimer Annual Communications & Technology Conference.  Some of the highlights are as follows:

• Expects to be free cash flow break even in aggregate for rest of 2008;
• Expects to be free cash flow positive for full year 2009;
• Core 2008 revenue growth expected 8% to 13%;
• Debt maturity schedule no issue until 2010 or beyond;
• Debt/EBITDA expected to be 6.6X for 2008, down significantly from last three years.

At the end of April this was under $3.00 and it was under $2.00 at the end of March.  This is also the first time the stock has seen north of $4.00 since October 2007.  With this being a 6-month high, expecting some profit taking might be prudent until we are closer to more new data from the company or until we get any game changing calls from analysts.

Jon C. Ogg
June 4, 2008

China's Complicated Telecom Mergers (CHU, CN, CHA, QCOM)

There is a complicated merger in the Chinese telecom market, which is part of the government mandate to consolidate a fragmented telecom industry in China.

China Unicom Ltd. (NYSE: CHU) has formalized a deal that came out over the weekend to acquire China Netcom Group Corp. (NYSE: CN) in a deal that puts the debt and equity value around $56.3 Billion.  In a separate deal, China Telecom Corp. (NYSE: CHA) will acquire China Unicom parent's CDMA network for roughly $15.86 Billion in cash.  China Netcom will be delisted and will become a wholly-owned subsidiary of China Unicom.

Recently, China's government had mandated a restructuring of the country's six major telecom operators where these will become three entities.  Interestingly enough, China believes that the more consolidated players will create more competition and prevent any single carrier from a winner take all position. 

China Unicom is the major CDMA service provider in China, and it has some 42 million subscribers as of the end of 2007.  Because these stocks were all tied up in a coming deal, some of the shares had been halted on local exchanges while these terms were being worked out.

While it may be hard to interpret or play play the consolidation waves in China's telecom mergers, one winner of this merger will likely be Qualcomm Inc. (NASDAQ: QCOM) because it wins on every new CDMA user it gets.  This of course assumes that the other deals don't take away from the company's CDMA and WCDMA user base, and that is not necessarily an assured outcome.

You can join our open email distribution list to hear about other mergers, IPO's, secondary financings, restructurings, and other special situations.

Jon C. Ogg
June 2, 2008

Despair Returns At Sprint (S)(CLWR)(VOD)(T)(VZ)(INTC)(GOOG)

Sprint (S) put out promising news. Along with Clearwire (CLWR) and an investor group with big tech companies like Google (GOOG) and Intel (INTC), the wireless company will build a 4G network based on WiMax.

The new network might give Sprint the jump on Verizon Wireless (VZ)(VOD) and AT&T (T) Wireless in the race for super-fast wireless service. Sprint shares rose from $5.63 in mid-March to $9.40 last week.

It has begun to dawn on Wall St. that Sprint still has significant problems. AT&T and Verizon are rushing to get up 4G systems of their own. Sprint may end up with little or no time without competition in the market.

Perhaps worse, Sprint's customer service is considered the worst in the wireless industry. Having new and attractive technology will not solve that problem. It can only be remedied from inside and, so far, the company has had no success.

Sprint's shares are back at $8.28, and that may not be the near-term bottom. The firm is out of good news.

Douglas A. McIntyre

Sprint's Up... Earnings, Merger, or Deals To Dominate (S, CLWR, DT)

Sprint Nextel Corp. (NYSE: S) is set to report earnings on Monday morning, with an earnings conference call to follow at 8:00 AM EST.  First Call has estimates at $0.02 EPS on $9.41 Billion in revenues.  Estimates for the coming quarter are $0.04 EPS on $9.25 Billion in revenues, and estimates for Fiscal Dec-2008 are $0.12 EPS on $36.67 Billion in revenues.

The only real question besides wondering if the company's earnings report now even matters at all is if the bar has been set so low that it can't be stepped over.

We are in the camp that the earnings are going to be awful and largely irrelevant.  There have been persistent rumors that Deutsche Telekom (NYSE: DT) is going to spring for the flailing telecom giant.  We already saw teh WiMAX deal for 2009 and beyond get announced with Clearwire (NASDAQ: CLWR) and every other technology giant.  And we know that there is interest from current and past leaders of the company in perhaps taking it private.

The good news is that this stock has finally busted out of that long-term downtrend on the chart.  That doesn't mean it will do a V-reverse, but it means the worst has been seen.  Shares were over $20 a year ago, and shares have gone as low as $5.48.  Now at $9.38 on Friday, you have to wonder if a higher bid will come much higher since this has now risen some 70% from the lows.

Sprint could easily be trading at $11.00 or higher, and just as easily it could be back down to $8.00.  The only thing you can hope for on the earnings front itself is that the news could be less horrible than fears.  Otherwise it will take more buyout talk or more deal making to add substantial value.

Jon C. Ogg
May 11, 2008

Will 3G & TV Drive iPhone Demand Even More? (AAPL)

The rumors of launch dates for the new Apple (NASDAQ: AAPL) version of the 3G iPhone are still rampant.  Some target mid-June and some comment on early-June.  Apple's Worldwide Developers Conference is June 9 to June 13. 

Now if they'd just keep these in stock.  I have called several stores close by and they are either out of stock entirely or they have only the 8GB iPhone.  Even then, one store said it is only available for existing customers of AT&T Wireless.  That will keep people from being able to buy and then unlock them for another carrier. 

This low stock has been fueling more and more rumors and stories about the release date of the new 3G iPhone.  If Apple wants to see all the hot iPhone sales go into this quarter, it better get these new iPhones out or it better hurry up and get a bunch of new ones in stock to where they can sell the phones.  Otherwise it may have to tell shareholders iSorry.  We gave the scenario earlier for a $200.00 Apple stock.

Late yesterday a company called Orb announced it could now allow you to watch live TV on your iPhones for free, provided you have a TV card or adapter for your computer.  Maybe Apple can make people watch TV on the little screens, but that's been a tough ride for everyone else. 

Apple shares are down 1% at $83.10 shortly before the close today, after seeing price north of $185.00 on and off this week.

Jon C. Ogg
May 9, 2008

Vonage Leaps on Metrics (VG)

Vonage Holdings Corp. (NYSE: VG) reported that first quarter revenue rose by 15% to $225 million.  The company also generated an adjusted operating income of $8 million, while its net loss narrowed to $9 million or $0.06 per Share.  The estimates from First Call were -$0.07 EPS and $223.17 million in revenues.

After the earning, we aren't really concerned with the actual results today.  The reason is because the company is in financing talks over its debt that is probably going to be put back to the company late this year.

In a separate announcement, recently-bought Covad announced a pact where Vonage will offer its customers with a broadband solution using Covad's nationwide DSL network.

As far as individual metrics, Vonage's monthly revenues per line rose by $0.51 to $27.87.  Its churn rate rose to 3.3% in Q4.  It added 30,000 net subscriber lines to end with 2.6 million lines.

Vonage shares are up about 6% pre-market at $2.01 in pre-market trading.

Jon C. Ogg
May 8, 2008

Jon Ogg is a producer and editor of the "10 Stocks Under $10" weekly newsletter from 247WallSt.com.

Sprint & Friends: Revenge Against The Phone Companies

Sprint (NYSE: S) was dead and being lowered into the grave when the big firms which really hate the phone companies came in and exhumed it  At this point Verizon Wireless and AT&T (T) are the hegemonic players who have locked up cellular service in the US. Between them, they have 130 million subscribers. Their customer bases are rising. Sprint's is not. Their profits are spectacular.

Dislodging leaders from the high ground takes more than a modest assault. Sprint would not have been able to do it on its own. Bring on Google (GOOG), Intel (INTC), Comcast (CMCSA), and Time Warner Cable (TWC). They will put over $3 billion into a joint venture between Sprint's broadband operation and WiMax start-up Clearwire (CLWR).

Sprint is actually a bit player in the new venture. If it did not exist, the companies supporting the new plan would have to have created it. Sprint is in on the deal because it is convenient to use their current WiMax plan and customer base as a vehicle to get at the two largest cellular providers.

The new alliance is a real problem for Verizon Wireless and AT&T. They have been about to bundle cellular service with their landline, TV, and broadband products. For crying out load, one of them even has the Apple (AAPL) iPhone.

Google doesn't have much use for the iPhone. They want a G-Phone which runs their software. Now they can run it off the new WiMax wireless broadband network which they are helping to build. It is a much cheaper alternative than buying spectrum from the FCC at a price of $4 billion. It gets them a home for their handset-based operating system, Android.

Comcast and Time Warner get some revenge against their telecom rivals for coming into their backyards with fiber TV service. Intel (INTC) is putting money in because it wants to sell chips for WiMax devices.

The next generation of wireless broadband will make the current 3G deployments seem very slow. Verizon and AT&T are not far along in articulating and building out their technology to attack this market. That give the WiMax program an important head start.

Sprint did not do much other than being in the right place at the right time. Now it will be the backbone of the first real assault on the national leadership that the phone companies have in the cellular business. The new investors are motivated by profit, and they are motivated by vengeance. It is a mix which should make the thing work.

Douglas A. McIntyre

Now For A Little Bad News From Sprint (S): Verizon Wireless Takes Qwest (Q) Contract

All of the rumored good news out of Sprint (S) took the stock on a magic carpet ride yesterday. First there were reports that Deutsche Telekom (DT) might buy the whole company. Then there were rumors Sprint might spin-off its failing NexTel division. It is not clear why anyone would want it, but that is beside the point.

Now word comes that Verizon Wireless, a joint venture of Verizon (VZ) and Vodafone (VOD), has gotten the franchise to sell wireless service to all of Qwest's (Q) customers. Qwest is a big phone company which covers fourteen states, but it does not have a cellular service business of its own. That Qwest franchise has a substantial value because of the number of landline customers the company serves.

According to The Wall Street Journal "A Sprint spokeswoman said the carrier was "disappointed that Qwest has chosen this path" but said it would remain focused on its wireless partners and continue to evaluate opportunities in that space."

The news may be very good for Verizon Wireless in its race with AT&T (T) Wireless to be the No.1 wireless provider in the US, but the announcement may have more of an effect on Sprint. The company is just now starting to shed the perception that it can never do anything right. Since its merger with NexTel customer service has been so bad that the company has not been about to grow while its rivals add more subscribers each quarter.

The Qwest news reopens the question of why DT would want to buy Sprint. Its 50 million customers are certainly attractive. Added to the DT US wireless operation T-Mobile, it would create the largest cellular provider in the US. But, how can a company based in Germany and with a relatively small US operation fix Sprint's problems and take the two operations through a complex merger.

Similar issues face any company which takes the NexTel part of Sprint's business. Many Sprint executives and Wall St. analysts blame the NexTel part of the business for most of the execution problems that trouble Sprint's operations.

Sprint/NexTel and NexTel are not worth buying. The problems that go with the firms and their customer bases are overwhelming and would vex even the most seasoned telecom management.

Douglas A. McIntyre

AT&T (T) Mobile TV: Another Product No One Wants

Most research from Gartner, IDC, and Yankee Group, firms which follow tech trends, shows that people do not want to watch video on their phones. The picture quality is awful. No one can see the action in "Iron Man" on a one-inch square screen. Dropped signals mean TV show interruptions, just at the best part of "Desperate Housewives".

But, the phone companies persist. Verizon (VZ) already has a system and now AT&T (T) will begin a mobile TV product using technology from Qualcomm (QCOM) called MediaFlow. The Qualcomm tech was rejected by an EU standards board last year, but it is apparently good enough for AT&T.

According to The Wall Street Journal "The service, which will be available in 58 markets, including most big cities, will offer programs from several major TV networks, including CBS, Comedy Central, NBC and Fox."

It would be hard to imagine that rolling out the system across all of AT&T Wireless will not cost at least several hundred million dollars. The company might as well put that money in a pile and burn it.

Douglas A. McIntyre

AT&T (T) To Make Big Apple (AAPL) iPhone Price Cut

To keep customers coming in when the new Apple (AAPL) 3G iPhone comes out, probably in June. AT&T (T) will cut prices on the current model by as much as $200.

According to Fortune," AT&T is preparing to subsidize $200 of the cost of a new iPhone, bringing the price down to $199 for customers who sign two-year contracts."

Recent research from Changewave indicates that the lack of a 3G product is the primary reason that customers don't like the current iPhone.

Apple and AT&T could both run into inventory trouble. There is no guarantee that a large price cut will clear out the old 2.5G units.

Someone still may be left holding the bag.

Douglas A. McIntyre

Vonage 'May' Have Financing Set Up (VG)

Vonage Holdings Corp. (NYSE: VG) has signed a non-binding letter of intent with "a third party financing source" to provide $215 million in a private debt financing. 

The company noted that about two-thirds of the financing will be provided through a senior secured credit facility and the rest will be an issuance of convertible secured notes.  The letter of intent is a proposal "that will be used as a basis for financing," so it is not necessarily a done deal.  It sounds like it may even be testing the waters to see how the market reacts, but that is just conjecture. 

Net proceeds from this financing, plus its available cash on hand, would be used to repay, tender, or redeem its existing convertible notes.  Those notes can be Put back to Vonage on December 16, 2008 with a principal amount due of approximately $253 million. 

As of March 31, 2008, the Company had approximately $190 million in cash and cash equivalents, of which $42 million was restricted and $148 million was unrestricted.  As a reminder, the company will report its earnings on May 8, 2008.

You can join our open email distribution list to hear about other secondary offerings, special financings, spin-offs, IPO's and other special situations.

Jon C. Ogg
April 25, 2008

Level 3 Guidance Sends Short Sellers Covering (LVLT)

Level 3 Communications (NASDAQ: LVLT) is out with earnings, and the short sellers are getting out of the way.  The company posted -$0.12 EPS on $1.09 Billion in revenues, while First Call estimates were -$0.11 EPS and $1.06 Billion in revenues.

James Crowe, CEO, has noted that telecom strength has helped in the last several quarters and that core communications services pricing continues to be positive.  The company has also substantially increased available installation capacity. 

Level 3 has also reaffirmed its two primary goals for 2008.  The first is to reach free cash flow breakeven on a run rate basis during 2008, and the second is to increase sales and installations to rates that match customer demand for services.  More specifically, the company noted that performance has exceeded earlier expectations and it expects to be "free cash flow breakeven" for the remaining three quarters of this year.  Deferred communications revenue decreased slightly to $918 million at the end of Q1-2008, compared to $939 million in Q1-2007 and $929 million in Q42007.

This is key for Level 3 in our opinion.  With a long-term debt of $6.831 Billion and cash and short-term securities of $568 million (including $8M restricted), their ability to remain cash flow breakeven is acceptable.  We have just covered Level 3 in our weekly "10 Stocks Under $10" as one that we expect some longer-term recapitalization as part of that debt starts to come closer to maturity, but on a short term basis we expected a short-covering rally into earnings.  That last short interest was massive at 243.9 million shares.

Shares are up over 10% at $2.62 in pre-market trading this morning, and the 52-week trading range is $1.68 to $6.42.

Jon C. Ogg
April 23, 2008

Jon Ogg is a producer of and editor for both the Special Situations newsletter and the "10 Stocks Under $10" weekly newsletter for 247WallSt.com; he can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

AT&T (T) Up On Big Wireless, Fiber Increases: Bad News For Cable And Sprint (S)

AT&T (T) had a good quarter, powered by its wireless service.

For the quarter ended March 31, 2008, AT&T’s revenues totaled $30.7 billion, up 6.1 percent versus reported results in the year-earlier quarter. The company reported first-quarter 2008 net income totaled $3.5 billion, up 21.5 percent from $2.8 billion in the year-earlier first quarter, and reported earnings per diluted share totaled $0.57, up 26.7 percent from $0.45 in the first quarter of 2007.

Total wireless revenues increased 18.3 percent versus the year-earlier first quarter to $11.8 billion. Wireless service revenues, which exclude handset and accessory sales, grew 17.1 percent to $10.6 billion. Wireless data revenues grew 57.3 percent versus results in the year-earlier first quarter to $2.3 billion,.

Growth in AT&T U-verse TV service, the company's next-generation IP-based video service, continued its strong ramp during the first quarter, achieving a net subscriber gain of 148,000 to reach 379,000 in service. AT&T expects a further ramp in the quarters ahead and is on track to reach its target of more than 1 million subscribers by the end of 2008

The growth in U-Verse is bad news for cable firms like Comcast (CMCSA) and Time Warner Cable (TWC) who are seeing the fiber products from AT&T and Verizon (VZ) eating into their customer bases.

On the wireless front, the AT&T success is probably bad for Sprint (S), the No.3 player in the market. It has been trying to gain subscribers in a US market which is nearly saturated in terms of total wireless subscribers. Growth from AT&T may well be coming at Sprint's expense. AT&T appears to continue to post successful sales of the Apple (AAPL) iPhone. It is the exclusive US distributor of the handset.

Douglas A. McIntyre

Platinum's Buyout of Covad Set To Close (DVW)

As we have been expecting, Covad Communications Group Inc., (AMEX:DVW) announced that it has obtained all of the required regulatory approvals for it to be acquired by an affiliate of private equity firm Platinum Equity.

This deal had already been approved by shareholders, and now it has secured approval from the FCC and a number of state public utility commissions.  Covad expects that its $1.02 all-cash buyout is expected to close on April 15, 2008.

We recently reviewed this transaction for what we felt was a safe bunt for a 10% return in our "10 Stocks Under $10" newsletter, and we also covered this one with an "all-clear" signal from both Platinum and Covad when the spread widened out to more than 25% and it looked like an at-risk deal.

Shares of Covad closed at $0.95 yesterday and are indicated up at $0.98 this morning.

Jon C. Ogg
March 26, 2008

Jon Ogg produces the Special Situation Investing Newsletter and can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Level 3 Insiders Nibble On Stock (LVLT)

After the close, there were several SEC Filings that showed insiders at Level 3 Communications Inc. (NASDAQ: LVLT) bought shares of the company.  These buys may sound like a lot for the public, but they are not massive when you consider this is still under $2.00.  Either way, it's always better to see insiders buying their stock rather than selling it.  Here are the buys:

• John Reed, Director, bought 29,000 shares at roughly $1.83 on March 11.
• Albert Yates, Director, bought 10,000 shares at $1.84 on March 11.
• Douglas Eby, Director, bought 250,000 shares at prices from $1.91 to $1.96 on March 11.

Level 3 Communications is one we have had under review for our weekly "10 Stocks Under $10" letter and we will wait to see if more insiders line up to buy before we take off our prior negative bias. There may be more filings that show insider buying and selling than these three so stay tuned.

Jon C. Ogg
March 13, 2008

Neutral Tandem Insiders Scramble To Sell Into Lock-Up Expiration (TNDM)

Neutral Tandem, Inc. (NASDAQ: TNDM) has filed to sell 4.5 million shares of stock in a secondary offering this morning via underwriter Morgan Stanley.  The use of proceeds is zero for all practical purposes for the company as all of the shares being sold are by selling shareholders.

This represents 14.3% of total common stock outstanding based on a 31.3+ million share count listed.

The company provides tandem interconnection services to competitive carriers, including wireless, wireline, cable and broadband telephony companies.  As of December 31, 2007, Neutral Tandem had 78 major competitive carriers and non-carriers connected to its network.

The insiders and original backers aren't wasting any time here.  The company has only been public since November 2007, so they are lining up to sell the most they can under the 6-month lock-up agreement.  Shares closed at $20.18 yesterday, and the post-IPO trading range is $16.51 to $23.00.  This was actually a fairly hot IPO at the time as it priced 6.6+ million shares at $14.00 per share on its IPO.

Jon C. Ogg
March 13, 2008

24/7 Wall St. Conversation With Verizon (VZ) CEO Ivan Seidenberg

24/7 Wall St. interviewed Verizon (NYSE: VZ) CEO Ivan Seidenberg about the wireless and broadband industries.

When asked about the concern among investors that wireless saturation rates and new cellular price plans are a sign of a price war which might hurt profits for Verizon and its peers, Mr. Seidenberg said that there is a legitimate concern that cellular penetration is at 85%. He said that this means the market is not going to grow at 15% each year. The addressable market for cellular subscribers can't keep moving up at anywhere near those rates.Verizon has been winning new customers by taking wireless share from competitors consistently and he expects that to continue even in a fairly highly pentrated market. Also, in terms of wireless data use, that is only 20% of the market now and 75% of customers have data-enabled phones  The data market is not saturated at all. That is the future of revenue growth in wireless.

Seidenberg said in terms of the new cellular pricing program, Verizon's average wireless customer pays $51 a month. The company has more people moving up from the $79.95 price level to the new $99.95 plan than it does people dropping from very high-priced plans. As customers come to Verizon for air cards and other wireless devices, they have let the firm know that they want better pricing for their cellular service. Verizon is getting growth from this new pricing program and expects to benefit from low data use penetration as more customers subscribe to these services. The revenue from these will be accretive which should be evident in future quarters.

The landline broadband business also has high penetration, so some of the same concerns apply here. Seidenberg made it clear that on the broadband landline side, DSL does have high penetration, but with the company's FiOS service, Verizon is competing with cable and satellite. Investors are worried about a price war with cable, but that is unlikely to happen. The consumer is actually using more services and this is also helping the cable companies as people add flat-screen TVs, other consumer electronics devices, and high definition screens. This is pushing cable ARPs up as well.

The capital spending Verizon is doing on FiOS and that the cable companies are doing is to get business from an expanding pie. Cable went from 36 channels to 300 channels and that type of increase in services to customers is still growing. So, from the perspective of the industry the revenue-yield-per-household for broadband is moving up

When asked about friction between the cable companies and the FCC on net neutrality Seidenberg said that Verizon agrees with the FCC's five principles of net neutrality, any access for anybody. The company believes that the marketplace will enforce these. Where Verizon doesn't agree with the FCC is on its position of having government regulation. Seidenberg says net neutrality is a ruse. The market should allow Verizon and other broadband companies to provide competitive services at competitive prices. The broadband consumer market will provide limits and already does. Regardless of the outcome on issues at the FCC, Seidenberg said Verizon would adhere to the non-discrimination principles of net neutrality.

Douglas A. McIntyre.

Good News For AT&T (T), Sprint (S), And Verizon (VZ): Mobile Broadband Up

Use of mobile broadband, PCs connected to the internet over cellular networks spiked up 154% from the Q4 06 to Q4 07. The total number of unique computers hooked up at the end of last year was 2.168 million. The number does not include WiFi consumers.

The news is good for Verizon Wireless, AT&T (T), and Sprint (S). Now that cell phone penetration is high in the US and unlikely to grow at the rate it has over the last decade, new users who need a line to connect PCs is a potentially huge market. It is not hard to see the total moving to 10 million customers or more over the next two or three years.

According to comScore, the people using mobile broadband tend to be well-off with heaviest use among people with household incomes of over $100,000 a year.

Douglas A. McIntyre

Earnings Preview: Sprint Nextel Corp. (S)

If there is one ugly telecom company in the major telecom stocks, it is Sprint Nextel Corp. (NYSE: S).  The company reports earnings tomorrow morning.  The estimates from First Call are $0.18 EPS on $9.92 billion in revenues.  Next quarter estimates are $0.15 EPS on $9.71 billion in revenues. Estimates for fiscal 2008 are $0.60 EPS on $38.84 billion in revenues.

If you can find anyone who is in love with this one his name is probably Dr. Pangloss.  This recently wrote-down essentially all of its entire purchase price of Nextel.  Sprint was also listed as one of our companies that we have said could actually disappear by year-end.

Analysts have an average price target north of $14.00, more than 50% higher than the closing price of $8.95 on Wednesday.  Sprint Nextel’s 52-week trading range is $8.07 to $23.42.       

Jon C. Ogg
February 27, 2008

The Wheels Come Off At Nortel (NT)

Nortel (NYSE: NT) is going to fire 2,100 poor souls as its business has gone into a flat spin. Telecom equipment companies have been falling like flies with recent poor reports from Alcatel-Lucent (NSYE: ALU) and the telecom unit of Siemens (NYSE: SI).

Revenue in the fourth quarter of $3.20 billion was down 4 percent year over year. The company lost $844 million.

"We have made strong consistent progress on key financial metrics in 2007 that has positioned us well for continued improvements in 2008 and beyond," said Executive Vice-President and CFO Pavi Binning. He is obviously looking at figures that no one else has seen.

Nortel only expects low single digit growth in 2008.

The company may not be dead, but it is getting there.

Douglas A. McIntyre

Qwest (Q) Wants A Better Deal From Sprint (S)

Shares of telecom company Qwest (NYSE: Q) are up almost 8% on news that it wants a better deal with Sprint (NYSE: S) for providing wireless service in its region which includes 14 states.

"We need a wireless partnership that is different than the one we have today,"  Qwest Chief Executive Ed Mueller told an analyst meeting quoted by Reuters, In straight English, that means he wants a bigger piece of the pie for marketing Sprint's products.

Sprint's stock is down on the news. But, perhaps it should not be. Qwest, in many ways, is posturing. It could turn to AT&T (NYSE: T) and Verizon (NYSE: VZ) for wireless services but that would be handing the franchise to very powerful companies that are already competing with Qwest for long-distance and business customers. Qwest could turn to wireless also-ran T-Mobile, but its products and services tend to be down-scale.

Qwest is bluffing with nothing more than a pair of twos.

Douglas A. McIntyre

Level 3 (LVLT) Near $2

Perhaps the prospect of Level 3 (NASDAQ: LVLT) COO Kevin O'Hara speaking at the Merrill Lynch Communications Services Forum next week drove investors out of the stock. Shares were at $2.50 two days ago and $2.06 today. No bottom for these sh