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TWST: How do you define the integrated communications providers sector today?

Mr. Spiridellis: Integrated communications providers, or ICPs, were formerly known as the competitive local exchange carriers, or CLECs. These companies emerged shortly before and following the Telecom Act of 1996, which deregulated the local telecommunications market in the United States. Since the passage of the Act, we’ve witnessed a proliferation of competitive carriers in the nation. There are approximately 400 ICPs that compete directly with incumbent local exchange carriers, which are also known as the regional Bell operating companies (RBOCs). About half of these ICPs are deploying their own networks, which portends interesting opportunities for public and private investors to finance their anticipated growth. While the sector continues to evolve, there are about 20 ICPs, or CLECs, that we currently follow or recommend as stocks.

TWST: You also have NEXTLINK (Nasdaq:NXLK) as a current top pick. What are the factors that set NEXTLINK apart from the crowd?

Mr. Spiridellis: NEXTLINK Communications is our top pick among the facilities-based carriers. NEXTLINK is an ICP that we recently initiated coverage on with a price target of $52. The company was founded and is controlled by Craig McCaw. NEXTLINK has assembled a unique collection of network, management and financial resources that position it to execute its transatlantic expansion. What makes NEXTLINK stand out is the experience and depth of its management team, which has a strong operating track record. We also believe that the recent acquisition of Concentric Network accelerated this company’s data services strategy by at least 18 months. We estimate that the acquisition will provide top-line synergies of about $400-$450 million between this year and 2004. In our view, that should be achievable given the robust demand that exists for integrated communications solutions and the combined entity’s complementary distribution channels. We also believe that NEXTLINK’s current expansion into Europe presents attractive growth opportunities, while positioning the company to capitalize on the tremendous growth prospects for ICPs in that part of the world. We’d note that Concentric already has distribution channels, peering relationships, data centers and customers in the United Kingdom and the Netherlands, which should serve as an attractive growth platform for NEXTLINK in that region.

TWST: Was NEXTLINK able to fund their expansions internally, or was that infusion of capital necessary?

Mr. Spiridellis: It was necessary and so will be significant additional funds to execute the current business plan. NEXTLINK has a capital-intensive business plan. It has relied not only on Craig McCaw, Forstman Little and the stock market for equity financing, but also the high yield and bank markets for growth capital. The current business plan is financed into late 2001, which represents ample near-term liquidity.

TWST: The reverse of that would be companies that are growing through customer acquisition only and are not necessarily increasing their suite of services, or the ones that are not integrating voice, telephony and data. If they’re not looking at all the different elements out there in this industry today — at that fully integrated ICP formula that you’ve described — then they’re not the targets.

Mr. Spiridellis: Right. To sum it up, competitive carriers that focus exclusively on one or two offerings are at a competitive disadvantage to ICPs that offer one-stop-shop solutions for their customers. ICPs can capture more of their customers’ spending on communications solutions, and can derive additional revenue streams to cover a relatively fixed-cost base. That should enhance returns on invested capital.