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Where does Ntelos fit in?

The Top Story by Chris Graham


Ntelos is back on the stock market – but as shares in the Waynesboro-based telecommunications provider hover in the $12 range following an initial public offering on the NASDAQ exchange last month, questions regarding where the company fits into the crowded technology sector abound.

“For Ntelos and companies like Ntelos, it’s a good time to be active – because the sector generally has picked up, plus, additionally from these big mergers, the smaller guys are a lot more nimble. They’ve got more feet on the street – particularly as far as reaching out to small- and medium-sized businesses is concerned. And they’re able to adjust on the fly to the changing needs and demands of their core constituency,” said Craig Clausen, the senior vice president and chief operating officer of the Chicago-based New Paradigm Resources Group, a research and consulting firm tracks the tech industry.

“Overall, for Ntelos, they’re in the cutting edge of what we’d like to see more carriers do. That is, they’re leading with a little different package, and they’ve shifted their focus to lead with wireless services and then also go in with the wireline services – the dedicated Internet access, the high-speed access, coupled with voice and other related services,” Clausen told The Augusta Free Press.

An advantage that Ntelos has over other small telecoms in reaching out to the small- and medium-sized business sector in particular is its foothold in the competitive-local-exchange market, said Pat Hurley, the director of research at the Richmond-based TeleChoice.

“The real issue for competitive local carriers is getting access to the lines of the incumbent local carrier,” Hurley said. “They have an inherent cost issue when they have to lease a line from Verizon or another carrier, and then want to resell a service on that line to a customer, their cost based on what Verizon can charge them for the line is almost as what Verizon can charge an end user themselves. So it’s a tough market for competitive providers – because they rely upon the local carrier for the line to reach their customers.

“A lot of these smaller regional competitive providers are doing OK because they often tend to focus on segments of the market that the big carriers don’t put a lot of attention toward – maybe small- and medium-sized businesses who aren’t really being served very well by Verizon or Bell South or ATT,” Hurley said.

“That’s sort of the gap in the market for these guys where they can have success – simply because they can offer a package of voice and data services and wireless services for a small or medium business,” Hurley told the AFP.

As nimble and adaptive as small telecoms like Ntelos might be, there is a feeling that perhaps too many small, nimble, adaptive companies might be crowding the marketplace, according to Weston Henderek, a senior analyst with the Washington, D.C.,-based industry-research firm Current Analysis.

“The concern that I have is, if you look at the U.S. market, it’s more competitive than it’s ever been. There are a lot of national carriers, sure. But the number of new providers, new NVMOs, which are popping up in the market, is just absolutely exploding. At last count, there are roughly 70 NVMOs in the U.S. market that are launching service in one form or another through one of the larger carriers,” Henderek said.

“They target their service in different ways – whether it’s business services, the youth market, with prepaid or any number of different combinations. But the point is that the number of people in the market competing in this wireless space has just been increasing incrementally. Ntelos is a small provider, known in some parts of Virginia, and in general they’re going to be facing much, much heavier competition,” Henderek said.

“It’s going to be a very tough market to stay competitive in,” Henderek told the AFP.

Bob Rosenberg, the president of the Boonton, N.J.,-based Insight Research Corp., agrees with the assessment from Henderek regarding uncertainties in the current marketplace.

“Telecom is incredibly competitive right now,” Rosenberg said. “The move to essentially rewrite telecommunications laws in 1996 was supposed to increase competition, but effectively what it has done is led to consolidations of the big players. There are four major telephone companies in the country right now, and who knows how long all four of them will survive?”

Rosenberg, like Hurley, feels certain that if “Ntelos was in a position where it simply resells other people’s services for local and long distance, it would be extremely difficult to get ahead.”

“But given that they do own substantial fiber facilities, that gives them a leg up,” Rosenberg told the AFP.

Offering a more neutral perspective on Ntelos’ place in the market is Robert Green, an investment strategist at Briefing.com.

“I believe that the future of the telecommunications industry revolves around capital investment, as the development of what I call the ‘single-source vendor’ will be the key competitive issue. As such, a small company like Ntelos is not going to be a very influential player,” Green said.

“However, it is very likely to be acquired at some point by a larger company, particularly a cable company, as what it does hold can help someone get closer to the converged single source product that the telecom infrastructure now allows,” Green said.

“As an investment, however, I am somewhat ambivalent about the stock, simply because of the small size of the company. As an acquisition target at some point, it just doesn’t accelerate the market position of whomever decides to buy the company, solely because it is so small,” Green said.

Another possible chink in the armor comes up with the matter of the company’s move to file for Chapter 11 bankruptcy protection in 2003 following the downturn in the U.S. economy and a run of acquisitions that left it with a sizable debt load.

Rosenberg thinks the experience of having been through those rough times once will be a benefit as Ntelos looks to expand.

“Everybody was affected by the economic downturn from five and six years ago. No one was immune. To Ntelos’ credit, they stuck with their guns, and now that the telecom industry is rebuilding, there is room in this environment for companies like Ntelos – provided that they have super customer service and offer their customers hot buys,” Rosenberg said.

“It’s a much more cautious environment than what we saw in the late 1990s. Companies are having to be much more fiscally responsible than they were during the boom. The fact that Ntelos was able to stick it out – and has backers willing to take them to the next level – is a good sign,” Rosenberg said.

Clausen concurs with that assessment.

“Number one, they have a stable leadership. The people that have been there have been there for a while. Sometimes that’s good, sometimes that’s bad. I think in this instance it’s a positive for the company – given that these people have lived through one bankruptcy,” Clausen said.

“The question arises – would they have survived if they hadn’t had any missteps in that perfect storm, if they had just stuck to being an ILEC serving their 100-year-old franchise?” Clausen said.

“They would have been pretty well insulated, but they were doing what we should complement them for doing – exploring. They had seen the future. They have to go out of region. They have to expand. Otherwise, they’re going to have this niche market that eventually is going to get squeezed by outside forces. Voiceover IP or something else is going to come and eat their lunch. So they took a pre-emptive strike that bit them in the butt the first time,” Clausen said.

“This time around, the conditions are much more favorable, plus I can’t believe they’re chimps. They’ve learned. They seem to be smart and savvy people. You have a couple of smart and savvy people, favorable conditions, and good things have a way of happening,” Clausen said.

“It’s good timing for their IPO. I think they were smart for moving now and not waiting much longer. I think it gives them the additional funding that they’ll need to push deeper into other markets,” Clausen said.


(Published 03-06-06)




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