Two Ways to Play Open Wireless Access

01/07/2008 12:00 am EST

Focus:

Nikhil Hutheesing, editor of Forbes Wireless Stock Watch, says open wireless networks could change the business and he says two companies in particular could benefit.

In 2008, the move to wireless data everywhere will take a giant leap. Verizon Wireless just announced this month that in 2008, it will open up its networks so that any compatible device and any compatible software can be used to send data across its networks.

Traditionally, operators have kept tight control over their networks, allowing only authorized devices and software to operate. By opening it up, Verizon will experience more traffic, it will generate greater revenues and it will allow the mobile Internet to come into its own.

As Verizon tears down its "walled garden," I expect that we will see AT&T (NYSE: T), Sprint Nextel (NYSE: S) and T-Mobile begin to do the same thing. But so far, Verizon is in the lead and its management, I believe, is top notch.

Verizon (NYSE: VZ) is an interesting company that you should be closely watching. Enormous as it is, with some 200,000 employees, it's proven itself to be nimble and innovative, with its FIOS (fiber optic service) initiative in the wireline business chipping away at the cable companies' core business, and its move to open data wireless networks, which will change the way all service providers operate their networks.

Verizon's stock could do very well in 2008 and I recommend that you buy it, if you haven't already. (It closed below $43 Friday—Editor.)

As these networks open up, we'll see new technologies that will help provide faster connectivity. WiMax will be one of those. WiMax, you may recall, was heralded as the next big wireless technology in 2007 that would drive open access. Its chief advocate was Sprint Nextel, which greatly hyped the technology, calling it a paradigm shift for the wireless industry. Sprint Nextel planned to launch a high-speed WiMax network as an alternative to the 3G networks being deployed by Verizon and Sprint.

Lately, Sprint has run into a great deal of problems, losing its chief executive, Gary Forsee, and ending a broadband deal to build high-speed networks around the country with Craig McCaw's company, Clearwire. With its new chief executive, Dan Hesse, Sprint says that it is committed to WiMax.

The company had partnered with cable companies to get programming content. But all along, it has been bleeding customers—its churn rate has been among the highest in the industry. Part of the problem is that Sprint had a high percentage of high-risk customers than other carriers. Also, the company had problems integrating Nextel, which it acquired earlier, into its business. With the company in repair mode it's looking like a better long-term investment.

The fundamentals: Sprint has a forward PE of 15.2x, a price/earnings-to-growth (PEG) ratio of around 1.5x, and while it is laden with debt, as is typical for service providers, it has $2.2 billion in cash. (It closed Friday below $13—Editor.)

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