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Wall Street bets on Nextlink
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September 26, 1997: 2:33 p.m. ET
Investors seen paying big for talents of cell phone pioneer Craig McCaw
From Correspondent Fred Katayama
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NEW YORK (CNNfn) - The telecommunication business has a lot of investors buzzing about Nextlink Communications, which went public Friday at $17 a share.
Hordes of new companies are breaking into the $100 billion local phone market. But what sets Nextlink apart from the pack is its leader, the cell phone pioneer who sold his company to AT&T, Craig McCaw. Wall Street is betting investors will willingly pay a big premium for the Bellevue, Wash., company.
"The fact that Craig McCaw is associated with Nextlink definitely gives it an added allure and will cause this company probably to trade at a premium to the group, because Craig McCaw is considered a telecommunications pioneer," said Ryan Jacob, research director for IPO Value Monitor.
McCaw's company is off to a rugged start, with sales of just $26 million and no profits last year.
Nextlink offers local phone service in seven states, where it targets small business customers. But the telecom business eats up lots of capital, so it hopes to raise about $200 million by going public. A successful offering could value Nextlink at more than $1 billion.
Also in the company's favor are the stocks of Nextlink's rivals like Teleport, McLeod and Brooks Fiber, which have more than doubled since April as investors bet on the industry's fast growth of 50 to 100 percent a year.
'The industry has taken about half a percent market share, if you look at the actual number of phone lines the Bell companies have lost," said Stuart Conrad, telecom analyst for Deutsche Morgan Grenfell. "In that respect, it's a very small slice, but this could very well be a full percent market share by the end of this year."
Nextlink faces risks, however. The regulatory environment that now favors it could change, and it lacks the big brand name recognition of the existing local carriers -- the Baby Bells.
Shares of Nextlink (NXLK) rose 45 percent Friday to end the session at 23-1/4.
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