Going Public

Reinvigorated Industry Restarts the IPO Engine

By the end of 2007’s first quarter, IPO activity in telecom/tech already had reached one-third the amount of such activity in all of 2006, further indicating Wall Street’s regained confidence in the sector.

In 2006, there were 25 technology IPOs totaling $3.03 billion. In contrast, nine telecom/tech companies already had gone or planned to go public during the first quarter of 2007 in offerings projected to earn more than half that.

David Janazzo, a telecom analyst for Merrill Lynch & Co. Inc., says the past year-and-a-half has made a big difference in bringing telecom back from the “nuclear winter” of the early 2000s. Carrier consolidation has created a healthier market, leading to increased venture capital funding. In turn, companies are building that money into arsenals large enough to support IPOs. Janazzo says that after years of negative estimates on telecom stocks, “there’s been some stability that gives investors confidence, but I wouldn’t say we’re in an era of over-exuberance with regard to telecom.”

The atmosphere might not be over-exuberant, but it is optimistic. IPOs among tech companies during the first quarter of 2007 accounted for 67 percent of overall public market activity, according to Thomson Financial. The firm defines the technology sector as encompassing Internet, communications, semiconductor and software businesses.

One hot area for IPOs is wireless. Wireless ISP Clearwire Corp. kicked in $600 million of the $1.4 billion contributed by telecom/tech companies in the first three months of the year. MetroPCS Wireless Inc. hoped to make $1.15 billion off the sale of 50 million shares priced at $23 apiece. Indeed, that IPO (see story, below) garnered the most excitement because it had the potential to be telecom’s largest IPO since 2000. Its shares rose 19 percent during the first day of trading.

“Telecom has been doing very well lately,” says an analyst with a leading investment firm who asked not to be identified. “Wireless companies are doing well with subscriber growth and wireline companies are also performing well.” The only caveat is Sprint Nextel Corp., he adds. “Sprint is struggling a little bit with their subscriber additions.”

Companies in the VoIP space also have been fueling the IPO engine. That might be because manufacturers of VoIP and IMS equipment for service providers had a stellar year in 2006, with worldwide revenue jumping 32 percent and reaching $3.3 billion in 2006, according to a new report from Infonetics Research. The overall market is up 8 percent from the third quarter to the fourth quarter, the report said. Infonetics expects the service provider VoIP and IMS equipment market to more than double between 2006 and 2010, when it is expected to reach $6.9 billion worldwide.

“We saw a lot of healthy growth in the service provider next-gen voice and IMS market in 2006, including very active M&A and IPO vendor scenes, highlighted by the successful Acme Packet IPO in October — and BroadSoft and Veraz Networks are next,” said Infonetics Research principal analyst Stéphane Téral in the report issued late in 2006. “The five-year outlook for the overall market looks good, pointing to a sustainable investment cycle.”

Indeed, VoIP equipment maker Veraz started trading in early April of 2007, but at press time remained in its SEC-mandated quiet period. The company’s IPO opened at $8, under the $12 per share it hoped to garner. Its 52-week high came to $8.19 and its low was $6.19. Veraz, which sells softswitches, media gateways and digital compression products, intends to use proceeds from its IPO to buy equipment, cover general business needs and fund potential M&A.

There’s even some IPO action from a CLEC — McLeodUSA Inc. Under new leadership and intent on rebuilding its reputation, the company is braving a second IPO.

The CLEC earlier this year filed to sell stock worth up to $172.5 million.

The company deregistered from the Nasdaq about a year ago, after its second bankruptcy. Now it proposes to trade on the Nasdaq Global Market under the new ticker symbol “MUSA.” The previous symbol was “MCLD.” The carrier intends to pay off debt, expand its IP platform and stock away money for M&A activity. McLeodUSA also was in its quiet period at press time.

Now the industry is speculating about who will be next. One analyst speaking on background says BroadSoft Inc. is preparing the paperwork to go public, adding switch maker Cedar Point Communications Inc. and Cantata Technology Inc. — the joint company formed by Excel Switching Corp. and BrookTrout Technology — could be next. The companies did not return calls for comment by press time.

MetroPCS Wireless Inc. in late April wowed Wall Street with the biggest IPO of the year, and one of the largest since 2004.

The wireless provider — which targets low-income and young subscribers — debuted on the New York Stock Exchange on April 19 under the ticker “PCS.”

MetroPCS priced its 50 million shares at $23; it hoped to earn up to $1.15 billion. By early the next day, prices had skyrocketed to $28.37 on volume of 4.1 million shares.

The company’s main competitor is Leap Wireless International Inc. That provider also has been popular among investors. Its stock price has hovered in the high-$70 range.

The first quarter of 2007 saw some large IPOs in the telecom sector, most notably the $600 million offering from broadband provider Clearwire Corp., but nothing like this.

MetroPCS has tried going public before — once in 1997, under the name General Wireless Inc., and again in the summer of 2004. General Wireless went bankrupt and emerged as MetroPCS, which halted its intended 2004 IPO because of accounting problems that revealed lower profits and sales than believed.

The company since has emerged as one of the top competitors in the credit-conscious wireless services space. Last year it bought $1.4 billion worth of spectrum from the FCC to expand its coverage. The company says it will use proceeds from its IPO to move into Boston, Las Vegas, New York and Philadelphia.

Dallas-based MetroPCS boasts 3.4 million customers, mostly in parts of California, Florida and Georgia.

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