Global Wireless Leaders Report Solid Earnings

Despite all the ballyhoo over the "wireless web," if you want to invest in a wireless provider that is actually making money from the Internet then you'll have to look abroad to do so. Vodafone and NTT DoCoMo's earnings reports for the first half of this year were released today, and they demonstrate that at least some carriers are making money from wireless Internet services.

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By Chris Rugaber (TMF RFK)
November 14, 2000

Strong earnings reports from leading wireless providers Vodafone (NYSE: VOD) and NTT DoCoMo (OTC: NTDMY) provided some relief for the mobile communications sector today, after months of negative sentiment resulting from expensive spectrum license auctions and concerns over network upgrade costs. In addition, while most U.S. carriers are still struggling to earn revenue from wireless data services, today's reports demonstrate that it can be done, as both companies are seeing significant sales growth from their Internet and data offerings. Investors interested in the future of wireless communications should certainly be paying attention to these two companies.

Around the world with Vodafone
Vodafone, the world's largest wireless provider, boasts over 65 million customers in Europe, North America, Asia, the Middle East, and Africa, as of September 30, up from 42.3 million last September. The company reported a 24% jump in earnings before interest, taxes, depreciation, and amortization (EBITDA) for the first half of the fiscal year, and revenue growth of 32% to 10.2 billion pounds ($14.6 billion). The company posted a net loss of 4.7 billion pounds thanks to acquisition costs.

While the company did see a squeeze on its operating margins, which it argues will be temporary, on the whole things are looking good for Vodafone. The U.K.-based carrier sports a much healthier balance sheet than many of its telecom counterparts, thanks to the kind of asset sales that telcos such as AT&T (NYSE: T) and British Telecom (NYSE: BTY) are only now contemplating.

As a result, despite Vodafone's $157 billion purchase of German telecom giant Mannesmann, and $16 billion in spending on European spectrum licenses, the company sports only 13.2 billion pounds ($18.9 billion) of debt on its balance sheet, which it expects to drop below 10 billion by the end of the fiscal year this March. By telecom standards, that's not bad. After all, as a Bloomberg report pointed out, Vodafone is the only large European telco not under review for a credit downgrade by Standard & Poor's.

The company saw a significant jump in the use of its Short Message Service (SMS), which sends text messages over wireless phones. Traffic rose to over 160 million messages just in the United Kingdom, up from 49 million in the previous half-year. Overall, the company calculated that SMS, data, and Internet services accounted for 5.5% of its monthly customer revenue, equal to about a billion pounds of revenue. While Web browsing is difficult and cumbersome with today's slow transmission speeds, SMS may be the killer app that many wireless carriers are looking for.

Finally, while Vodafone's international reach is broad and impressive, it is only now moving to unify the company's properties under a single brand name in Europe, which it aims to do by January. In addition, Vodafone plans to offer a single-rate European calling plan by March, which it hopes will attract additional business customers, as such plans have done in the United States.

As the wireless telecom sector continues to develop, Vodafone is definitely worth keeping an eye on. For more information, check out today's analysis of Vodafone's report from our fellow Fools across the pond.

NTT DoCoMo's i-mode roars ahead
Meanwhile, Japan's leading carrier NTT DoCoMo (NYSE: NTDMY) has been in the forefront of wireless data services for some time, and today's report demonstrates that the company is earning decent returns from its i-mode service. Earnings jumped 22% for the first half of this year, to $2 billion, from about $1.65 billion in last year's first half. Sales rose 26%, to $20.3 billion.

Data transmission revenue, primarily from the company's i-mode service, jumped 20-fold to $1.08 billion, as i-mode subscribers reached 12.7 million, up from 1.73 million in September of last year, and as use of the service surpassed most analysts' expectations. While 5% of sales resulted from data transmissions in the first six months of this fiscal year, analysts expect that number to reach 8% in the second half. The company itself projects that data will make up half of its transmissions by 2005, and 70% by 2010. Should DoCoMo continue to expand its international presence -- they have minority stakes in European and Asian carriers -- they could be a formidable competitor to Vodafone.

Investors interested in either of the two should keep in mind that as non-U.S. based companies they may require additional work, but there's no reason to let that stop you if you're up to it.

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