AT&T's weakest wireless affiliate hits the markets

The third, final and weakest AT&T wireless affiliate -- Tritel -- goes public today and should make a respectable debut. But one question lingers: Wouldn't it make more sense to just buy AT&T shares?

AT&T Wireless, which will be traded as a tracking stock, holds sizeable stakes in Tritel and its two cousins -- Triton PCS and Telecorp PCS.

Under the AT&T arrangement with its affiliates, AT&T calls the shots when it comes to branding, licensing and other crucial issues concerning its affiliates. In return, Tritel, Triton and Telecorp market services under the SunCom brand, have access to the AT&T logo and issue lots of shares to AT&T.

The shortcut here is clear: Buy AT&T shares and own a piece of all three publicly traded affiliates.

Sounds logical, but Wall Street will give Tritel the spotlight Tuesday. Tritel priced at $18 (£11) for trading today after raising the range of its 9.375 million share offering to $17-19, from $15-17.

If the Tritel IPO sounds vaguely familiar it is -- Triton PCS and Telecorp PCS both went public this fall and have returns of 150 percent and 80 percent, respectively (chart).

The Tritel IPO, underwritten by Goldman Sachs, may post similar short-term gains compared to Triton and Telecorp, but is considerably weaker than its cousins. It's hard to see why investors would get too enthusiastic about Tritel.

Like many cellular companies, Tritel is in the build-out phase. That means big debt, big expenses and little revenue. "We are a development stage enterprise with limited operations, have had no significant revenues and expect to have significant operating losses in our initial stages of operations, we have recently begun to provide wireless services in six of our major markets," the company said.

Revenue for the nine months ending September 30 was $176,000 with a loss of $28.7m. Tritel didn't have any revenue prior to that period, but does have debt of $551.8m as of September 30. Tritel sees debt of $1.3 billion by 2001 as it builds out the network.

Now compare Tritel to Triton and Telecorp, the other two AT&T wireless affiliates. For the nine months ending September 30, Triton had sales of $81m and loss of $91m. And for the nine months ending September 30, Telecorp had sales of $48m and loss of $144 m. Based on sales, Tritel has a lot of work to do. All three affiliates have shown they are champion money losers.

Tritel also has a weaker coverage area compared to Triton and Telecorp. Tritel operates in the south central part of the US, including Mississippi, Alabama, Kentucky and Tennessee, but doesn't have access to the densely populated metropolitan areas.

Triton has the markets of Washington, D.C., Charlotte, N.C. and Atlanta and Telecorp operates in New Hampshire, Massachusetts and a host of other areas ranging from New Orleans to San Juan, Puerto Rico.

The comparisons, however, may be academic because AT&T owns a stake in all of them. Upside in either Tritel, Triton or Telecorp benefits AT&T.

Net2Phone: Distribution pays

Net2Phone is showing how a little distribution can go a long way. The company beat estimates for its first fiscal quarter and has every reason to be upbeat about its future.

Internet telephony is now gaining momentum and Net2Phone seems to have good timing. A slew of distribution pacts also helps.

In recent months, Net2Phone has inked distribution pacts with America Online, CompuServe, Priceline.com, and Go2Net. The company also said yesterday that its software will be bundled in with Qualcomm's Eudora mail program.

3Com: Palm pays

Nothing like spinning off a unit to get investors excited. 3Com, written off as a networking also-ran a few months ago, should get some action after its Palm Computing unit filed for a $100m IPO.

The Palm IPO, which will hit the markets in February, is great news for 3Com shareholders. The IPO almost guarantees gains until February. Of course, 3Com has to get by with its earnings report next week. Assuming that report goes well, 3Com will be off to the races.

Be careful here though. We've seen this game before. Company spins off unit, gains big time and then exhales once the IPO is launched.

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