Nextel Partners IPO gains as much as 55%

The stock of Nextel Partners, a cellular-telephone service provider founded by cellular-phone pioneer Craig McCaw, soared as much as 55 percent today in its trading debut as the Kirkland company raised capital for expansion into smaller markets nationwide.

Nextel Partners, which enjoys a close relationship with the larger Nextel Communications, was priced yesterday at $20 a share, a figure driven upward from an expected $17 a share by wireless-crazed investors.

The stock, which trades on the Nasdaq Stock Market under the symbol NXTP, climbed as high as $31 today. At the close, it was up $10.125, or 51 percent, at $30.125.

Nextel Partners spokesman Bob Ratliffe said there has been far more interest in the stock than the number of shares available.

Nextel Partners, which filed for an initial public offering (IPO) in January, sold 23.5 million shares of common stock, bringing its outstanding shares to 236.7 million. At $30.125 a share, the company has a market capitalization of about $7.1 billion.

Reston, Va.-based Nextel Communications, in which McCaw has held a controlling interest since 1995, owns 32.9 percent of Nextel Partners. McCaw's Eagle River Investments owns 8.2 percent. Other shareholders are Donaldson Lufkin & Jenrette, 12 percent; and buyout specialists Madison Dearborn Capital Partners, 11.4 percent. Motorola, which developed Nextel's digital-transmission technology - integrated digital enhanced network, or iDEN - owns about 5.5 percent.

Nextel Partners said it intends to use the money it raises to build and expand its digital mobile network into territories for which it has an option. But because the Nextel brand will be co-marketed by two companies sharing the name, the IPO also is seen as a way for Nextel Communications to enter other, smaller cities without incurring much debt.

Nextel Partners "can leverage the national brand," said Harvey Liu, a CIBC World Markets analyst. It "can piggyback off the stronger brand, and the rural markets have been underpenetrated. . . . With Nextel Partners, (Nextel Communications) also enhances their footprints to bedroom communities."

Indeed, Nextel Partners, with only about 46,000 subscribers, has grand ambitions.

It intends to be in markets totaling 20 million people by the end of this year. It now serves areas of Texas, Hawaii, New York and Pennsylvania, and plans to roll out into cities such as Lexington and Louisville, Ky.; Waterloo, Iowa; Champaign, Ill.; and Jackson, Mich. The company also said it holds broadband wireless licenses that serve up to 40 million people in 46 markets.

Despite its ambition, its numbers indicate that Nextel Partners is still a start-up, with the challenges posed by a crowded market of what some have called a commodity product.

In 1999, Nextel Partners lost $112 million on sales of $32.7 million, compared with a loss of $22.3 million on sales of $5.3 million in 1998.

Meanwhile, the company has built out only 17 percent of its network, considerably lower than some rivals, including Powertel and Microcell, said analyst Drake Johnstone at Davenport & Co.

"They don't have much revenue or customers to speak of," he said. "And I would venture to say that other affiliate IPOs had a greater portion of networks built out than Nextel Partners."

But such details do not seem to deter investors, who remain bullish on the wireless sector.

Johnstone said the stock "should trade at a discount" because its network isn't as developed as those of some of its competitors, but a rising demand for wireless IPOs may have driven up its valuation.

"They're the new kids on the block and they need to prove themselves to Wall Street," CIBC's Liu said. "But the connection with Nextel gives them (more of a) head start than some brand-new company. They have a lot of building out to do, and they need the capital to do so."

Apart from co-marketing and sharing of network and marketing, Nextel Partners' fortunes are tied to its East Coast cousin in other ways. Nextel Partners has the option to acquire Nextel Communications licenses that cover 13 million people. Moreover, Nextel Communications customers will be covered when they roam into Nextel Partners markets.

The companies also intend to share certain switching facilities and network-monitoring systems.

"Our affiliation with Nextel (Communications) is an integral part of our strategy," the company said in a securities filing. "Our systems are operationally seamless."

Roger Yu's phone message number is 206-464-3119. His e-mail address is: ryu@seattletimes.com.