the Wharton School of the University of Pennsylvania
. Freedman joined
in 1988. He is now a senior telecommunications services analyst for the firm, but before that, he was a senior analyst in Bear's risk arbitrage department. From 1986 to 1988 he worked at
in the mergers & acquisitions department.
Industry Outlook and Style
"The wireless telephony industry has one of the best outlooks of any sector of the economy over the next few years," says David Freedman. He and his
team predict the current U.S. customer base of 86 million wireless users could double by the end of 2003, representing 60% market penetration. Pricing has been a key driver here, with lower effective rates and any-distance pricing plans raising the average monthly minutes of use to 180, up from 100 a few years ago.
Another positive is that the decline in average revenue per user (ARPU) is slowing. Projecting a 2% decline in ARPU for 2000 followed by a plateau for several years, the analyst says that the emergence of packet data capabilities creates new revenue opportunities.
"While we project a continued decline in the average voice revenue per subscriber, wireless data starts to kick in about 10% of the industry's revenue growth in 2001 and more than 20% in 2003. If the adoption rate for data services is faster than expected, we could see ARPU increasing in the next few years."
He says, however, that investors have already bid up the stocks of wireless carriers, so "gains in the stocks may be more modest in the next 12 to 18 months." Furthermore, since the public float of wireless pure plays has increased in the last year, he contends that stock picking is now more important than in 1999, when nearly all these issues performed well.
In addition to wireless data, Freedman asserts that continuing consolidation within the industry will act as a catalyst for both nationwide and regional carriers this year. International carriers are driven by a desire to establish a U.S. presence, while carriers wanting to expand their territory may seek regional carriers. "Mergers completed in the past year should also provide a catalyst in the form of improving margins and new revenue potential for the acquirers," he adds.
Among the national carriers, Freedman gives attractive ratings to
. The regionals he deems attractive are
Freedman's top buy, however, is
Western Wireless Corp.
, whose stock has fallen more than 30% since the beginning of the year. Freedman believes that it has been overly beaten up; in his view, concerns about inbound roaming revenues and increasing competition in the mobile telephone business have been overplayed.
Looking at the downside, Freedman lists several possible pitfalls. Within the industry, price wars could emerge and market growth could stagnate. Interest rates could rise and concerns about health risks posed by wireless could lower usage or penetration rates. (Note: Freedman declined to give an interview to
. The industry outlook given here is summarized from his wireless industry report, "Telecommunications Untethered: Prepare for Packet Overdrive." A July report, it was the most recent publication he was able to provide. His top stock pick, however, is current.)
Favorite stock for next 12 months:
"We envision three potential catalysts for WWCA shares: 1) good third-quarter 2000 results, which differentiate WWCA from the crowd; 2) rural telco replacement opportunity coming into focus; 3) potential industry consolidation." Freedman believes the stock will reach $48 by the end of 2001, based on the mobility business alone. In addition, he says, "WWCA's international portfolio of licenses and its rural telco replacement opportunity could push the shares above $60 by that time."
Rate Their Stock Picks:
Which stock do you like best?
Lee: AT&T Wireless
Freedman: Western Wireless