interesting report on unw Week’s SpecialUNWIRED: ATTRACTIVELY...

interesting report on unw Week’s Special
UNWIRED: ATTRACTIVELY PRICED AND CLEAR GROWTH PATH, FIRST MOVER ADVANTAGE IN WiMAX
By Jenny Prabhu and Gerald Stanley

Unwired Group Ltd (UNW), which listed on December 23 2003 at 90c a share in the shell of Breathe Group is currently trading at 32.5c and offers an attractive entry into a company that has so far realised only a fraction of its potential.
Operating only in Sydney so far, equivalent to less than 25 percent of the overall Australian market, Unwired offers a fast wireless internet service as well as wireless broadband for desktops, laptops and eventually related mobile communications devices, a huge growth segment of the $35 billion telecommunications market.
It has purchased spectrum capable of covering 95 percent of the Australian population, including all the major metropolitan and regional centres with its huge capacity a great positive in being able to offer multiple products eg VOIP.
UNW owns most of the 3.5GHz spectrum in Australia, the preferred WiMAX band expected to be the next major global standard. .Unwired says it is the only carrier in Australia which can easily transition to WIMAX when the mobility standard is ratifed this year. Chip sets for this standard, which will be built into laptops and mobile devices, are expected from next year.
Management is highly experienced and prestigious, new products continue to be rolled out, it has 110 retail outlets in Sydney including Harvey Norman, Dick Smith and Tandy.
In the March 2005 quarter Unwired was awarded “Carrier of the Year” by the Australian Telecommunication User Group.
Although only operating in Sydney so far, Unwired is already one of the largest wireless broadband service providers in the world.
UNW’s net cash backing is 11c per share.
Unwired Group Ltd CEO David Spence said on May 3 the company had acquired 5,800 new net subscribers in March and April, the best performance since launch of the service.
Mr Spence said Unwired is well positioned after less than a year of commercial operations. Customer growth is strong, the company has a healthy cash balance of $26.4 million as at March 31 and its cash burn rate in the preceding quarter had reduced to just $4.5 million. The current cash balance is more than enough to take the company through to breakeven in Sydney, he said.
Meanwhile, Optus CEO Paul O’Sullivan at a telecommunications conference in Sydney on May 19 said the company was in negotiations with Unwired involving the rollout of wireless broadband across Australia using Unwired’s network and product and Optus infrastructure. Further details on the potential deal will be made available if the two parties reach agreement. (Optus, second only to Telstra, together with Telstra controls over 75 percent of the telecommunications market in Australia, valued at some $35 billion. AAPT owned by Telecom NZ and the third largest telecom player in Australia is rolling out the Unwired product to its customers, although slower than expected.)

What the brokers say
BBY Ltd (who was sponsoring broker to the Unwired float) in a report subtitled “Has UNW bottomed?” dated May 16 has a “buy” on Unwired at 30c, saying Unwired’s share price fell to an all time low partly on the current negative sentiment for small caps, partly on an apparent fall in the rate of sales growth in the third quarter, and partly on somewhat ambiguous remarks by Telstra’s Ted Pretty who in a speech at the Australian British Chamber of Commerce on April 28 said wireless broadband operators such as Unwired and Personal Broadband might become “stranded assets”, increasing investor anxiety relating to deployment of new technology in direct competition to cable based services.
The broker added that persistence of negative sentiment to UNW seems likely unless there is a major announcement of commercial significance, and some tax loss selling may continue to depress UNW’s share price until the end of June.
The broker says the expected contribution from the wholesale business has not yet materialised, for at least two reasons. The first is that a number of UNW’s wholesale customers are also selling the iBurst broadband service developed by private company Personal Broadband Australia. People Telecom (PEO) and Veritel, owned by Destra Ltd (DES) are examples, believed to be promoting iBurst more vigorously than Unwired.
Summing up, the broker says the sell down in UNW appears to be an over reaction to a seasonal downturn in sales in January and February. BBY revised its cash flow forecasts downwards based on projected lower customer numbers in full year 2005. The implications for a DCF valuation from July 1 2006 is a 5 percent reduction in share price, from $A0.99 per share to $A0.94 per share. This reduction captures a longer period to break even, implicit in a slower rate of customer growth, the broker says.

UNWIRED AUSTRALIA LTD – A SNAPSHOT

Headquartered in Sydney, Unwired Australia Ltd was formed in 1997 and incorporated in 2000, to establish fixed wireless access networks in most major cities and regional centres of Australia. Unwired intends to become the second local loop telecommunications service provider in Australia. Unwired holds spectrum licences which cover approximately 95 percent of the Australian population. The 3.5GHz spectrum was acquired by Unwired’s wholly owned subsidiary Akal Pty Ltd in part from the Federal Government in 2000 for $95.283 million with additional 3.5GHz spectrum acquired from Austar for $14.07 million for a total cost of $109.36 million.
On December 23 2003 Unwired listed in the shell of Breathe Ltd, after raising $100 million at 90c shares from institutions and $5 million at that price in shares issued to the general public.
(The spectrum licences terminate on December 13 2015. There is no guarantee that they will be extended but they are expected to be).

The Unwired business
Unwired’s focus is the residential, small and medium enterprises and home office segments initially in greater Sydney, offering a portable plug and play broadband service across its state of the art wireless network, at a competitive price.
Unwired’s retail service costs $15.95 a month for fast wireless internet (64 kpbs), no excess charges – no phone line, no dialup charges and the same modem can be used to upgrade to Broadband.
Unwired’s broadband service costs start from $29.95 per month, no contract is necessary, it has a portable connection, speeds up to 1 mbps. No excess usage charges.
Unwired has sufficient spectrum to enable it to deliver VOIP, telephone and multimedia communications – lack of sufficient spectrum is one of the major handicaps in the roll out of additional services suffered by other various players in the market.
Unwired has 70 sites in operation across Sydney, nearly 200 sectors covering 2000 sq km.
Unwired makes use of its own spectrum to connect nearly 60 sites to 12 fibre hub points.
It uses Navini NLOS (non line of sight) technology to provide services to customers inside buildings up to 3.5 km from the base station, which it believes to be the most advanced technology available. Navini is based in the US.
Unwired employs 90 full time staff.
Its customer service centre operates in house from 7.30 a.m. to 10.30pm Monday to Friday and 9 am to 5pm Saturdays and Sundays.
1/ Retail sales the focus
Retail continues to be Unwired’s fastest growing and most successful channel.
While Unwired’s wholesale broadband sales have lagged expectations, retail continues to be Unwired’s fastest growing and most successful channel. UNW has 110 retail outlets across Sydney including Harvey Norman, Domayne, Dick Smith, Tandy, Dick Smith Powerhouse and The Co-op Bookshop and most recently Tecksel, a reseller to small businesses.
2/The difference to traditional radio technology
Wireless broadband technology is connection via radio rather than by wires. It is a two way connection, a downlink from base stations to modems and an uplink from modems to base stations which is generally the limitation and means that reliable technology is needed to support reliable connection. In the past this was only achieved by using Line of Sight technology including fixed antennas attached to eaves or rooftops.
The new technology is Non-Line of Sight (NLOS) that offers real portability, with radio signals finding their way from base stations to modems by any means. It is self installed.
Unwired uses Navini NLOS technology to provide services to customers inside buildings up to 3.5 km from the base station and up to 19 km Line of Sight.
3/The difference to WiFi
While WiFi requires hotspots that are limited to providing a service between 30/100m away, Unwired’s service uses a modem which connects wirelessly to a tower from 3 to 10 km away. Customers can buy the modem from retail stores or online, plug it into their computers Ethernet or USB port to connect to the wireless network. The set up process takes under five minutes and customers are immediately on line.
Speeds available include 256 kbps, 512 kbps and 1 Mbps services.
4/WiMax ready – the Unwired advantage
Unwired owns most of the 3.GHz spectrum across Australia (the balance is owned by Telstra) which is the preferred WiMAX band. Unwired also has the capacity to run its current proprietary technology alongside new WiMAX technology with no customer disruption. Unwired’s network equipment provider Navini is a member of the WiMAX forum and UNW has a clear path to upgrade to WiMAX path.
WiMAX is based in a version of 802.16 and uses radio waves in the range from 2 to 11 GHz. At these frequencies radiowaves can penetrate some way into buildings, can bend and reflect around obstacles to an extent so that base station and the customer do not need a clear line of site to access the network.
The WiMAX mobile standard 802.16e is likely to be ratified as the global standard in late 2005.
Intel launched its Rosedale chip in April this year for the earlier WiMAX standard and will be making a chip for the next standard, which computer companies will then insert into their laptops and other portable devices, doing away with the need for modems.
WiMAX is expected to be introduced by late 2006 or in 2007 and is expected to take 30 percent of the wireless broadband market because of the flexibility in frequencies and channel size it supports (TelecomView 2004).
Major companies including Intel, Samsung, Fujitsu, Sprint, AT&T and British Telecom are members of the WiMAX forum. Unwired is closely involved with the WiMAX Regulatory Working Group.
5/Partners:
*US based Navini Networks for the provision of network operations centre services (Unwired switched from Airspan to Navini that offers a portable solution similar to that of start up personal broadband. Navini is a manufacturer of modems for laptop computers).
*Ericsson for the supply of backhaul equipment.
*Airspan for the provision of optical fibre based ethernet access services.
*Australian company Uecomm for the supply of data centre space and facilities.
*Equinix for the supply of router and IP Switching equipment.
*Cisco for the provision of fulfillment services.
*Exel for the provision of email services.
*Bluetie for site acquisition and base station construction.
*Downer Crown Castle Wireless Services for the acquisition of sites and construction of the base stations – a recently formed joint venture.
6/New offerings
UNW expects to introduce its PC card (PCMCIA) in 2005. Voice Over Internet Protocol (VOIP) is expected to be offered this year.




Competitors and the marketplace
There are numerous competitors, both Australian and multi national including all fixed line and diversified telcos ( all equally expert, or they would not survive - and many with deep pockets). Unwired has been seen as lagging in the speed of roll out of the iBurst broadband service to wholesale customers against some of Unwired’s existing wholesale customers (possibly on some sacrifice of margin).
The move to broadband by the Australian retail population is in a major growth path. IDC predicts wireless broadband in Australia will outpace overall market growth by 3 times in 2005, driven by increased broadband take up and with mobile telephony seen as a substitute for fixed telephony.
Unwired predicts over 1 million wireless broadband customers in Australia by 2008.
Wireless Broadband can also complement existing services in rural and metro areas and needs less infrastructure and therefore has lower costs for roll out to emerging markets.

UNWIRED FINANCIALS
Last Traded price 32.5 cents
Shares Issued 250.7 mln
Unlisted Options 25.5 mln numerous tranches at 90 cents expiring 2008- 2010
Market Cap $81.5 mln