Elliott Management Goes Activist on AT&T

Paul Singer's hedge fund firm Elliott Management has gone activist on AT&T (T), sending a letter to the board to outline what they feel is a 'compelling value-creation opportunity.  Elliott now owns $3.2 billion worth of shares and they see 65% upside to recent trading levels.

Elliott writes, "Elliott  made the investment in AT&T – among  its largest ever – because it exhibits a unique combination of historical underperformance,   a  depressed  valuation,  well-positioned  assets and  a clear path forward to generate extraordinary  value  for shareholders and other stakeholders."


Elliott's Letter to AT&T

Embedded below is Elliott's Letter & Presentation on AT&T.  It includes numerous charts and highlights T's valuation as well as struggling business lines:



You can also visit the website they've setup: activatingatt.com

What We're Reading ~ 3/20/19

T. Rowe Price: The Man, The Company & The Investment Philosophy [Cornelius Bond]

How to take the outside view [McKinsey]

Pitch on short Tesla [Dropbox]

What is Amazon [Zack Kanter]

Allen Zhang on the key product principles of WeChat [WeChat]

KKR is too cheap [Yet Another Value Blog]

Buying is easy, selling is hard [Bloomberg]

In 12 minutes, everything went wrong: LionAir crash [NYTimes]

The SaaS busines model & metrics [Matrix Partners]

How an app for gamers went mainstream [The Atlantic]

The risk of low growth stocks: Prestige Brands [Intrinsic Investing]

Franchise value: video game IP vs movie IP [Medium]

The 20 craziest investment facts ever [Irrelevant Investor]

Netflix is the most intoxicating portal [NYTimes]

Farmbelt bankruptcies are soaring [WSJ]

ESPN's ex-President wants to build the Netflix of sports [Bloomberg]

Inside HBO's plan to win the streaming wars [Vanity Fair]

Interview with Twitter CEO Jack Dorsey [Rolling Stone]

What We're Reading ~ 1/30/19

Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant [W. Chan Kim & Renee Mauborgne]]

Latest thoughts from Ray Dalio [LinkedIn]

Morgan Housel on what other industries teach us about investing [MicroCapClub]

Dominance of tech stocks: an evolve-or-die moment for world's great investors [Fortune]

A global tipping point: half the world is now middle class or higher [Brookings]

A look at Air Lease (AL) [Woodlock House]

Pitch on InterActive Corp (IAC) [LG's Musings]

AT&T wants to be big in entertainment but it has a $49 billion problem [WSJ]

Boeing's decision of the decade: does it build the 797? ]Bloomberg]

How Juul made vaping viral [Techcrunch]

Sports betting in the US: the rise of a billion dollar business [NYTimes]

Mukesh Ambani wants to be India's first internet tycoon [Economist]

How a former Canadian spy helps Wall Street mavens think better [NYTimes]

The best investments of 2018? Art, wine, and cars [WSJ]

A look back at the life of Jack Bogle [Vanguard]

The legacy of Herb Kelleher, co-founder of Southwest Airlines [Harvard Biz Review]

Summary of Great Investors' Best Ideas Conference (GIBI) Dallas 2018

The 2018 Great Investors' Best Ideas (GIBI) Dallas Conference recently concluded with proceeds benefiting The Michael J. Fox Foundation for Parkinson's Research and the Vickery Meadow Youth Development Foundation.  Here's a brief summary of the event:


Great Investors Best Ideas Dallas Conference 2018


Lee Ainslie (Maverick Capital) talked with Lee Hobson (Highside Capital) about quantitative investing and utilizing its features to replicate various typical fundamental processes: screening companies, position sizing, data sets.  Maverick has been focused on the intersection of man and machine, instead of simply one versus the other.  Didn't pitch any individual names.  Maverick has launched four quant funds over the past few years that have higher turnover, in addition to their fundamental hedge fund.


Jim Grant (Grant's Interest Rate Observer):  Likes municipal closed end fund BlackRock Investment Quality Municipal Trust (BKN), says trading at 13% discount.  Also recommended shorting Matthews International (MATW) due to aggressive accounting, as well as fighting secular trends like the shift to cremation.


Ray Nixon Jr (Barrow, Hanley, Mewhinney & Strauss): Pitched General Electric (GE), sees valuation around $12 on a sum of the parts basis.  Obviously there's been a lot of volatility in this name.


Lisa Hess (SkyTop Capital): Bullish on the electric vehicle shift.  Pitched Sherritt International debt: 7.875% 2025, as well as Aumann in Germany, a copper coil play.  Also mentioned that Tesla (TSLA) is a religion, not a stock.


Michael Price (MFP Investors):  Bullish on AT&T (T) as well as Intel (INTC).


Marc Cohodes (Former Managing Director of Copper River Management):  Negative on MiMedx Group (MDXG).  Also mentioned Intec Pharma (NTEC) as a long.


Richard Mashaal (Senvest Management): Paramount Resources (Canadian E&P), sees a double or triple in next 1-1.5 years.  Cited increased production and hidden assets as reasons for bullishness, also thinks multiple could re-rate.


Ken Hersh (George W. Bush Presidential Center):  e-Sports is a huge business in early innings.  Sees 280 million fans going to 550 million in next 4-5 years.  Plays on the trend include Amazon (AMZN) due to their ownership of streaming platform Twitch, game maker Activision Blizzard (ATVI), and graphics card maker nVidia (NVDA).


Roger Staubach (Former Executive Chairman JLL Americas):  "Adversity reveals genius and prosperity conceals it."


Stay tuned in the next few weeks as we'll be covering a ton of investment conferences.

What We're Reading ~ 10/26/16

The $108 billion man who has beaten the market [WSJ]

Cash: the most hated asset class on the planet [Felder Report]

What you can learn from family business [HBR]


On the future of video [REDEF]

The intelligent industrial revolution [nVidia]

Five market insights from Peter Lynch [Ivanhoff]

Explaining what made the internet 'break' recently [Gizmodo]

U-Haul parent Amerco (UHAL): ready to move [Barrons]

Arbs stay on sidelines of AT&T, Timer Warner deal [WSJ]

Private equity is sitting a ton of cash [ai-cio]

Interview with CEO of new exchange IEX [Bloomberg]

Why negative churn is such a powerful growth mechanism [Tom Tunguz]

WeChat works to maintain startup culture as it matures [WSJ]

What We're Reading ~ 9/21/16

But What If We're Wrong?: Thinking About the Present As If It Were the Past [Klosterman]

Profile of Alphabet's CFO Ruth Porat [Fortune]

The third transportation revolution [Lyft's CEO]

Electric vehicles: it's not just about the car [Bloomberg New Energy Finance]

US setting federal ground rules for self-driving car push [Forbes]

Profile of Ulta's CEO Mary Dillon [Fortune]

2016 US mobile app report [comscore]

On the inevitability of everything 'in the cloud' [Digits To Dollars]

8 price action signals every trader should know [Tradecity]

A look at Spanish banks [Exane]

Heavy equipment glut weighs on machine makers [WSJ]

Inside the cannibalistic culture of China's Tencent [Bloomberg]

Q&A with Chase Carey [Formula 1]

How Wells Fargo's high pressure sales culture spiraled out of control [WSJ]

A look through the eyes of beer wholesalers [Beverage World]

AT&T wants to blanket the country with gigabit wi-fi from utility poles [Gizmodo]

Jamie Dinan's Stock PIcks at Capitalize For Kids Sohn Canada Conference

We're posting up notes from the Capitalize For Kids Sohn Canada conference that just took place.  Next up is Jamie Dinan of York Capital who shared a myriad of investment ideas.


Jamie Dinan's Sohn Canada Presentation

Started off with some general comments. US growth is still quite healthy (although not considered by many people), Europe on the other hand is still not. With oil prices coming down, it will give a huge amount of money to the US consumer (essentially a $130B tax break for consumers – this of course assumes money is not relocated to other spending). Believes Europe will be a reactionary market to policies and this will create lots of distressed situations in Europe (and there is still plenty today).

Some merger-arb names which have ~90% probability of closing: Time Warner Cable/Comcast Corporation, Albemarle Corporation /Rockwood Holdings, and DIRECTV/AT&T Inc.

Next, pitched LONG Molson Coors Brewing (TAP), believes an event could happen with the recent news of Anheuser looking for a deal with SAB. Molson has a 42% stake in MillersCoors (The JV between Molson and SAB). This possible transaction will force SAB to divest their 58% interest from MillerCoors (STZ/BUD deal, divestment of Groupo Model JV), Molson seems like the only option. The deal will likely get done with debt and take Molson to 5x Net Debt-EBITDA. Believes Molson can realize great about of synergies (~$300M) from the US JV with their current Canadian operations. 

Be sure to check out the rest of the presentations from Capitalize For Kids Sohn Canada here.

What We're Reading ~ Analytical Links 5/14/14

Dream Big: on the Brazilian Trio behind 3G Capital [Amazon]

On investment process [Dasan]

Predicting the present with Google Trends [Berkeley]

A look at Yahoo: a puzzle, a mystery and an enigma [Aswath Damodaran]

The unlikely ascent of Jack Ma, Alibaba's founder [NYTimes]

Recession-baby millennials shun stocks after US slump [Bloomberg]

Families are dining out a lot less [RestFinance]

The future of monetising television [TheGuardian]

What happens when the cable TV money dries up? [Sports on Earth]

Africa growth outlook [WEForum]

Macau jackpot turns to bust for stock investors amid rout [Bloomberg]

Murdoch's $14 billion TV plan sets up showdown with Malone [Bloomberg]

AT&T's deal strategy raises questions [Dealbook]

How dumb are fund investors? [WSJ]

Post Office says it lost $1.9 billion in quarter [NYTimes]

What We're Reading ~ Analytical Links 5/7/14

Charlie Munger's essay on wisdom as it relates to investment management [Ycombinator]

A pitch on Altisource Portfolio Solutions [Value Venture]

Is Barnes & Noble the next Gamestop? [MicroFundy]

Notes on the Outsider CEOs [Student of Value]

Alibaba files to go public in the US [Yahoo Finance]

All the western companies you'd have to combine to get something like Alibaba [Quartz]

US home ownership rate falls to lowest since 1995 [Bloomberg]

The financial vulnerability of Americans [House of Debt]

Why has student debt increased so much? [Vox]

Tax avoidance: the Irish inversion [FT]

Pay TV field could shrink with AT&T interest in DirecTV [LA Times]

As Netflix resists, most firms try to befriend Comcast [NYTimes]

On online video ads [NYTimes]

On the world of peer to peer lending [NYTimes]

Warren Buffett didn't belch at Coke pay plan [Bloomberg]

What We're Reading ~ Analytical Links 2/26/14

Excerpts from Warren Buffett's upcoming annual letter [Fortune]

A look at 2014's best online brokers [Stockbrokers]

On adapting as an investor [ReformedBroker]

Is value investing bred in the bone? [WSJ]

Don't fall in love with your stocks [Marketwatch]

On the MBA vs CFA debate [CNBC]

A pitch on Discovery Communications [SumZero]

American shoppers are making a giant shift to dollar stores [QZ]

Vodafone cable deals interest complicates possibility of AT&T deal [WSJ]

The internet is F'd [The Verge]

Social advertising economics [Morally Bankrupt]

On what Facebook's acquisition of Whatsapp really means [Benedict Evans]

A look at Spirit Airlines [NPR]

A conversation about young Wall Streeters [Dealbook]

Gross vs El-Erian: inside the showdown atop the world's biggest bond firm [WSJ]

What We're Reading ~ Analytical Links 12/4/13

On investment idea velocity [Dasan]

Mapping investor behavior [All About Alpha]

Should AT&T (T) buy Vodafone (VOD)? [FT]

Bullish thesis on Sears (SHLD) starting to show cracks? [Peridot Capitalist]

A write-up on Colfax Corp (CFX) [Brooklyn Investor]

Once cable's king, Malone aims to regain his crown [Dealbook]

Deflation fears stalk eurozone [The Guardian]

Stock funds lure most cash in 13 years as investors chase rally [Investment News]

Short seller: best opportunity in two decades [CNBC]

Treasury seeks an exit from General Motors (GM) by year-end [Dealbook]

Paper on the valuable asset of spectrum [SSRN]

Advice on careers, finance and life from Harvard Business School class of 1963 [HBS1963]

Clear Channel's Bob Pittman on the value of dissent [NYTimes]

What We're Reading ~ Analytical Links 10/9/13

Some big investors can't get enough of Europe's toxic assets [Quartz]

On cash flow and destiny [Horowitz]

5 things you need to know about Janet Yellen [WSJ]

For Yellen, a focus on reducing unemployment [NYTimes]

Invest in what Wall Street hates [Marketwatch]

Why does value investing work? [Turnkey Analyst]

On avoiding the next bubble [WSJ]

Verizon mega-bond could pave way for AT&T [Reuters]

A look at eBay's CEO John Donahoe [Barrons]

How Twitter's business model is just like broadcast TV, only worse [Buzzfeed]

A road map to high value healthcare delivery [Healthcare Transformation Institute]

A look at Tower Group [Aleph Blog]

Is Medifast a cry baby or corporate bully? [WhiteCollarFraud]

Nest Labs reinvents the smoke alarm [NYTimes]

Jon Jacobson's Sohn Conference Presentation: Short Digital Realty Trust (DLR)

We're posting up notes from the Ira Sohn Conference 2013 in New York.  Next up is a summary of the presentation from Jonathon Jacobson of Highfields Capital.  He presented "The Illusion of Yield."  His pitched the short case on Digital Realty Trust (DLR).  


The Illusion of Yield

Jacobson said money market assets are in decline. Individual investors fled mutual funds, and slowly, but surely individuals are tiptoeing back to the market. They are buying high-yield bond funds and dividend stocks.

"Low risk" such as REITs, pharma/healthcare, Utilities, Telcos, even blue chips. He showed how health care is up 18% ytd, Utilities 18%, staples 16%. Very rare for this to happen in a bull market. This shows that investors are buying high dividend "safe" stocks. "All dividends are not created equal"

AT&T (T) beware: wireline a melting ice cube, wireless becoming competitive. Short: Linn Energy (LINE). Half of cash flow is from hedging gains.


Short Digital Realty Trust (DLR)

Short idea: Digital Realty Trust (DLR). $9B market cap, trades at 18x AFFO (adjusted funds from operations), 4.6% dividend yield. Fundamentals deteriorating, commodity business without barriers to entry.

CAPEX higher than company represents, dividend not sustainable. Stock worth about $20/share, not the $65 it's trading for. Cloud-based competition is coming in- Google (GOOG), Amazon.com (AMZN), and Microsoft (MSFT).

Rents at new data centers are down 20% since 2006. Spent $967M on CAPEX, claim only $22M of it was maintenance capex. This doesn't square. It's actually more like $413M/ year over time. So on $1B on revenue, cost of maintenance capex is more like 40%, not 2% This makes a huge difference- it implies they are only making 87c/share, not $3.12/share.

With a 4% yield on this 87c, you get a $19 stock. Replacement cost as estimated by the company is $18/share.  With no barriers to entry, increasing competition, prices dropping, why should you pay 3x book value for this business? Keep issuing secondary shares to fund ongoing operating cash shortfall, still doing acquisitions to mask what is happening.


Check out the rest of the hedge fund presentations from the event: notes from Ira Sohn Conference 2013.

Delivering Alpha Best Ideas Panel: Cooperman, Chanos, Feldstein & More

CNBC and Institutional Investor's Delivering Alpha Conference is going on today and we wanted to aggregate the highlights.  The "best ideas" panel included Omega Advisors' Leon Cooperman, Kynikos Associates' Jim Chanos, BlueMountain Capital's Andrew Feldstein, Queen Anne's Gate Capital's Kathleen Kelley, and BlackRock's Robert Kapito.

From the conference, we've also posted up the global opportunities panel as well as the chasing yield panel.


Leon Cooperman (Omega Advisors):  He pitched going long US stocks and called them the best house in the financial neighborhood, a tune he has been singing for well over a year.  However, he did make an excellent point that the maximum "pain trade" is going higher as tons of people are sitting on large sums of cash earning nothing. 

As for specific names he likes: Capital One (COF), Express Scripts (ESRX), Halliburton (HAL), Gannett (GCI), Kinder Morgan (KMI), MetLife (MET), Qualcomm (QCOM), Watson Pharma (WPI) and Western Union (WU).  He also likes AIA Group (1299.HK) traded in Hong Kong.

The Omega Advisors founder also continued to bash bonds, saying "buying US bonds right now is like walking in front of a steam roller and picking up dimes.  It's just not a good policy."

As far as the election goes, he thinks that if Romney wins, the market will spike by 150 points, but if Obama wins, it drifts lower. For more from the Omega man, we just posted up Leon Cooperman on 14 attributes that make a good portfolio manager.


Jim Chanos (Kynikos Associates):  The noted short-seller was out again negative on tech companies.  He mainly pitched the bear case on Hewlett Packard (HPQ), calling it a value trap.  We just recently highlighted Chanos' presentation on global value traps where HPQ was highlighted among other names.

He says that "when you lose the paradigm shift, you spend an awful lot of money defending what you have."  He compared HPQ to Eastman Kodak as the company is in declining businesses.

Chanos also touched on how instead of giving cash back to shareholders, companies will make value-destroying acquisitions.  He cited HPQ's buy of Autonomy last year.  The Kynikos man argues that HPQ has overspent on acquisitions and they're hiding research & development expenditures through them.

He's also negative on Dell (DELL) saying that the company finances its subprime customers (financing their revenue growth).  For more on Chanos we just recently posted up his thoughts on the psychology of short selling.


Andrew Feldstein (BlueMountain Capital):  He likes less liquid credit, angling for 8-12% returns over a 3-7 year time horizon.  He says you have to be patient as this opportunity is available due to everyone's obsession with liquidity (i.e. don't put your money here if you don't have an appropriate time horizon).  He mentioned bonds such as Prospect Medical if you can buy and hold.  Feldstein also mentioned he's less excited about legacy distressed assets in Europe.


Kathleen Kelley (Queen Anne's Gate Capital):  Formerly of Tudor and Kingdon, she pitched two ideas: short the British pound (against long US dollar) as well as short platinum, targeting 20-30% moves to the downside.  She wants to be long the USD against the sterling because the USD can be a commodity currency.

She also likes shorting platinum as there's an oversupply due to slowing Euro auto sales.  At the Ira Sohn conference two months ago, Ospraie's Dwight Anderson pitched going short platinum as well (in addition to going long palladium).


Robert Kapito (BlackRock):  He's going for the "income hog" approach by focusing on equity dividend funds, dividend stocks like AT&T (T), Verizon (VZ), Merck (MRK), Johnson & Johnson (JNJ), high yield bond funds (or individual issues from Sprint, Ally) and municipal bonds such as the San Francisco Airport, New Jersey Tolls.  He thinks that default worry surrounding munis is "overrated."


Sources: Notes sent by readers, II's blog, @iimag,  @ldelevingne, @footnoted, @aarontask

For more from Delivering Alpha, head to the global opportunities panel (featuring Richard Perry) as well as the hunt for yield panel (featuring Marc Lasry)

Goldman Sachs Very Important Short Positions For Hedge Funds: Q1 2012

Goldman Sachs is out with its Q1 2012 Hedge Fund Trend Monitor and we've already posted up Goldman's VIP list of most important stocks to top funds.  Now we're posting a new addition to their research: the very important short position list.

This tracks short exposure of hedge funds as an equal-weighted basket that "consists of 50 S&P 500 constituents with the highest total dollar value of short interest outstanding."  It can be accessed on Bloomberg via < GSTHVISP >.

Goldman emphasizes that this list is not based on 13F holdings (because hedge funds are not required to disclose shorts).  They also note that it's not a basket of stocks most held short.


Goldman Sachs Very Important Short Positions For Hedge Funds

Stock, value of short interest (in $ billions)

1. Johnson & Johnson (JNJ): $2.9
2. Exxon Mobil (XOM): 2.8
3. Intel (INTC): 2.6
4. International Business Machines (IBM): 2.4
5. Amazon.com (AMZN): 2.4
6. AT&T (T): 2.3
7. Chevron (CVX): 2.1
8. Verizon (VZ): 1.8
9. Duke Energy (DUK): 1.7
10. Walt Disney (DIS): 1.5
11. Abbott Laboratories (ABT): 1.4
12. Coca Cola (KO): 1.4
13. General Electric (GE): 1.4
14. Walmart Stores (WMT): 1.3
15. Caterpillar (CAT): 1.2
16. ConocoPhillips (COP): 1.2
17. Walgreen (WAG): 1.2
18. Time Warner (TWX): 1.1
19. Lockheed Martin (LMT): 1.1
20. Home Depot (HD): 1.1
21. Dell (DELL): 1.1
22. Bristol Myers Squibb (BMY): 1.1
23. Oracle (ORCL): 1.1
24. Schlumberger (SLB): 1.0
25. United Parcel Service (UPS): 1.0


Of the above. David Einhorn recently made comments about Amazon.com (AMZN) at the Ira Sohn conference.  While he seemed to be skeptical of the company during his talk, he did not say he was short.  He highlighted that the company has destroyed other businesses, taking market share, but criticized their weak profit growth.

Jim Chanos is short Dell (DELL) and he points to the decline of personal computing in favor of tablets and other mobile devices.  He's been correct in that regard as Dell recently reported declines in those segments in their latest earnings release.  But of course the bull case points to Dell's other business lines as they shift toward the enterprise. 


Here's the rest of Goldman's Very Important Short Positions List:

26. Amgen (AMGN): 1.0
27. AvalonBay (AVB): 1.0
28. Chipotle Mexican Grill (CMG): 1.0
29. Boston Properties (BXP): 1.0
30. Union Pacific (UNP): 0.9
31. Simon Property Group (SPG): 0.9
32. Procter & Gamble (PG): 0.9
33. Cerner (CERN): 0.9
34. Host Hotels & Resorts (HST): 0.8
35. Kohl's (KSS): 0.8
36. Waste Management (WM): 0.8
37. CenturyLink (CTL): 0.8
38. Carnival (CCL): 0.8
39. Philip Morris (PM): 0.8
40. American Express (AXP): 0.8
41. DuPont (DD): 0.8
42. McDonalds (MCD): 0.8
43. MetLife (MET): 0.8
44. Fastenal (FAST): 0.8
45. Merck (MRK): 0.7
46. Comcast (CMCSA): 0.7
47. Sysco (SYY): 0.7
48. Freeport McMoran (FCX): 0.7
49. Alcoa (AA): 0.7
50. Staples (SPLS): 0.7


Be sure to also check out Goldman Sachs VIP list of most important stocks to hedge funds for Q1 2012.

Why A Hedge Fund Manager Sold Sprint Nextel (S)

The following is extracted from Amit Chokshi's Kinnaras Capital Management fourth quarter letter:

"Investors may also be curious regarding the divestiture of Sprint-Nextel ("S"), our highest conviction holding in 2010. When Greenlight Capital founder David Einhorn revealed a stake in Sprint Nextel in early December (a few weeks after we had sold), I received a few "what do you think about that" emails, not surprising when one considers Greenlight Capital's 21.5% annualized return since inception in 1996. One of the reasons I sold S was simply due to a flurry of much more attractive prospects that arose in Q3. The limited capital we control allows us to invest in any segment of the market and I wanted to take advantage of that opportunity in Q3.

Nonetheless, I would have considered holding on to a small stake in S if I had greater confidence in its management team, marketing efforts, and competitive dynamics. When establishing our stake in S in early 2010, one component of my investment thesis was the head start S had on its rivals in deploying next generation ("nextgen") cellular capabilities. S's 4G service is provided through its majority stake in Clearwire ("CLWR"). S would also be releasing two spectacular phones using Google's Android Operating System in the summer -- the HTC EVO ("EVO") and Samsung Epic. Sales data was demonstrating that Android phones were gaining considerable momentum and the EVO and Epic were two of the most widely anticipated smartphones of 2010.

Heading into 2010, S would be the first to 4G with a significant lead time over its rivals, had two highly rated phones that could compete against any of the top smartphones, had a very compelling price point relative to other carriers, experienced massive improvements in customer service, and had already demonstrated success in rationalizing parts of its business to drive operational improvements. S also faced few financing constraints with most of its debt maturities far into the future. The stock was cheap across a number of valuation metrics and had a number of catalysts in place that could drive improvements in valuation.

Here's where the train started to get off the tracks. The telecom business is highly competitive and I believe companies have to go for the jugular when it comes to advertising to demonstrate their key strengths over their competitors. For example, Verizon ("VZ") directly mocks AT&T's ("T") network coverage in its television ads, leading the viewer to believe that VZ has the best coverage while T has overpriced and weak network coverage. S intended to release the EVO in June and a number of third party sources considered it to be the best smartphone available. S had for the first time a legitimate top-shelf product and had also developed a very competitive pricing plan offering far more value to a subscriber relative to VZ and T. I had expected some aggressive and smart advertising to promote the EVO functionality and S phone plans directly against its competition.

Instead there appeared to be little to no advertising until the final two weeks of the release and the marketing was very mundane. Effective marketing "shows" rather than "tells" and the EVO commercials were far too convoluted, doing nothing to effectively demonstrate the powerful capabilities of the phone. The video below is one of the initial EVO commercials and should illustrate my point (email readers will need to come to the site to view the videos):



I felt S had squandered a huge opportunity when there were no other competitors to market leading up to the introduction of the EVO and from that point on I began to question S's advertising efforts. For example, S runs advertisements before the coming attractions start in movie theaters. As theaters are usually pretty empty before the coming attractions start, I would wonder how effective the use of these ad dollars were in attracting new subscribers. I also was skeptical of the company's sponsorship of CBS's NFL halftime show and sponsorship of the Sprint Cup for NASCAR. My personal view was that S could be far more effective with advertising that demonstrates what its network and exclusive phones could do rather than spend ad dollars on blanket sponsorship.

The next problem arose with S's handling of CLWR. CLWR is majority owned by S but was also competing directly against its parent company by offering CLWR-branded service as well as specific connection devices such as the iSpot which competed against the S Overdrive. Considering that CLWR burns considerable cash, much of it from S, it was bizarre that S sat idly by for so long allowing CLWR to use S cash to develop products to compete against its parent. In Q4 it became apparent that CLWR would need more capital setting up additional tension between S and CLWR.

At this point S needs CLWR as it provides S with its 4G service but CLWR will still require billions to further expand coverage in the US. It will be challenging for S to fund CLWR's needs while also executing its own capital spending plans. S took far too long to decide to rationalize its iDEN and CDMA networks but it intends to start in 2011. This project will require billions and excludes the roughly $2B+ needed on maintenance capex and FCC license expenditures. These are not immaterial expenditures considering S generates under $6B in EBITDA.

What exacerbates this problem is that competitors are now coming to market with 4G services. While S had a large lead in terms of time, it squandered that lead with ineffectual marketing and poor management of CLWR. The company has a compromised operational and financial strategy and is now facing competition with far better marketing and deeper resources.

For example, S marketing executives could learn a lot from T-Mobile. T-Mobile has released some excellent ads which are exactly what I envisioned S would have done but did not. The T-Mobile ads copy the "I'm a Mac, I'm a PC" commercials Apple developed whereby T-Mobile goes directly after AT&T and the iPhone, highlighting AT&T's poor network performance and limitations of the iPhone 4. S could easily have done similar ads but for whatever reason, S CEO Dan Hesse has been reluctant to highlight any design and operational advantages the EVO and Epic have over the iPhone or the S network has over competitors. T-Mobile has had no such qualms and it would be little surprise if sales of T-Mobile 4G devices (even though T-Mobile really does not have 4G) accelerate due to the smart advertising (video below):



Aside from T-Mobile, VZ is also beginning to market its 4G service. VZ has the deepest pockets of US telecoms and will be rolling out its coverage network at an aggressive clip while S and CLWR struggle to address financing and operational aspects. In addition, 4G smartphones appear to be slated for wide availability across carriers in 2011. While the EVO and Epic were two of the best phones released in 2010, there are a host of very impressive phones set to be released in 2011 such as the Motorola Droid BIONIC, Samsung 4G LTE Smartphone (nextgen Galaxy S), and HTC Thunderbolt. What will make this challenging for S is the cost subsidies associated with increasingly advanced phones will not be as easily absorbed by S relative to its peers as the Company's current plans yield lower ARPU relative to its peers. This could result in further margin pressures.

When entering 2010, S has a number of tangible opportunities and I felt if the company successfully executed on these, operations would improve significantly and thus yield a better valuation for the stock. S had its chances but I believe they missed what was essentially the one "open year" they had to increase subscribers with a relatively light competitive field. As Q3 and Q4 passed, the window between S and its competition was virtually eliminated. I expect that 2011 will be a year where its deeper pocket rivals like VZ flex their muscles and offer 4G services with other attractive smartphones. S may still pay off handsomely for investors but I felt we had better places to invest and that the outlook for S was getting increasingly more challenging.

Disclosure: Author manages a hedge fund and managed accounts with no position in any of the companies mentioned above. "

The above was extracted from Amit Chokshi and Kinnaras Capital Management's fourth quarter letter.

Hedge Fund Harbinger Capital Plans 4G Wireless Network

Philip Falcone's hedge fund firm Harbinger Capital Partners recently unveiled quite a plan. They have thrown their hat into the ring of next generation wireless build-out as they've planned a 4G wireless network that will cover the majority of the country by 2015. This announcement comes right after Harbinger received approval from the Federal Communications Commission (FCC) to take control of SkyTerra (SKYT) on March 26th. Falcone will be assembling a network utilizing the LTE (Long Term Evolution) format, a technology that mainstream wireless providers like AT&T and Verizon have already invested heavily in.

In order to do so, Falcone plans to use his satellite investments, SkyTerra (SKYT) and TerreStar (TSTR). Readers of MarketFolly will already know that we've covered Harbinger's investment in these two companies for quite some time. We first mentioned Harbinger's TerreStar stake back in October of 2008. We then also posted about Harbinger's SkyTerra stake in February of 2009 and noted how they were ramping up their position in TerreStar in April of 2009. So, this is something that has been in the works for quite some time and Falcone seems confident that LTE is the way of the future.

Others might be intrigued to find that Harbinger also started a sizable position in Sprint Nextel (S) in the fourth quarter of 2009. Wireless connoisseurs will already know that both Sprint and Clearwire have been working on a high-speed network of their own, WiMax. So, regardless of which format wins out (WiMax versus LTE), Falcone has bets in both wireless 4G arenas. It does seem, however, that his larger bet is on LTE. You can view the rest of Harbinger's portfolio here.

For the specifics of Harbinger's LTE plan, we defer to GigaOm's summary as well as analyst Tim Farrar's take, both of which we highly recommend you read.

After all this, one thing's for certain: hedge funds love the play on wireless spectrum, data & smartphones. It's quite clear they see a bright and profitable future there. What's most interesting is the dynamic of how they each are making slightly different bets. As evidenced above, Harbinger is playing spectrum. We've also seen plenty of managers invest in the smartphone theme via Apple (AAPL) and a plethora of hedgies invest in wireless tower stocks such as American Tower (AMT), Crown Castle (CCI), and SBA Communications (SBAC). Many hedge funds, like Matt Iorio's White Elm Capital, have invested in both. We also make note that many of those stocks grace Goldman Sachs' VIP list of the most important stocks to hedge funds. While the investments vary, the theme is consistent: increased demand for wireless transmission of information, be it voice, data, or both.