Wireless Weddings Discussion Too U.S.-Centric

Includes: DTEGY, MIICF, NIHD, S, T
by: Stone Fox Capital

After a wild couple of weeks in the domestic wireless sector following the announcement that AT&T (NYSE:T) would purchase T-Mobile from Deustche TeleKom (OTCQX:DTEGY) in a $39B deal, the speculation in the media has centered mostly around other potential wireless mergers in the U.S.

Odd, considering that the U.S. market is very mature and past major telecom mergers a la Sprint (NYSE:S) and Nextel in the wireless sector and MCI (MCIP) and WorldCom in the wireline/data sector have largely been flops. Between merging networks and combining billing systems, it's extremely time-consuming and underproductive to undertake (trust me, I know from first-hand experience of working the projects of trying to merge the billing systems of MCI and WorldCom). The synergies aren't as easily achievable as the companies want to believe. Especially companies on the scale of AT&T and T-Mobile.

If an investor wants faster growth and more profitable companies, the opportunities appear greater outside the U.S. where voice is approaching maturity but data still has a lot of growth ahead. Companies like NII Holdings (NASDAQ:NIHD) are just now building out 3G networks in Brazil and Mexico. Millicom International (MICC) has fast growth operations in Latin America and Africa. So then why is the media focus completely on U.S. operations?

Seriously, why is Leap Wireless International (LEAP) listed as a buyout candidate? The company is expected to record substantial losses for the next several years after losing $3.60 per share in 2010. Sprint as well is expected to have continuing losses in 2011 and 2012. Are these really the companies that another company would want to buy?

On the other hand, MICC has significant earnings and has a 2.7% dividend yield. NIHD expects significant earnings growth and revenue growth approaching 20% from 2011. 2012 should be another good year, with the 3G networks in Brazil and Mexico fully functional and driving high value add revenue. Both companies appear much more attractive as takeover candidates, though I'd caution any investors to not invest in them based on that speculation. MICC and NIHD are great standalone investments at this point.

All financial data obtained via Yahoo! Finance.

Disclosure: I am long MICC, NIHD.