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Four analysts and top management from thirty-one sector firms examine the Technology sector in this special 120-page Kaufman Bros., L.P. Emerging Communications Conference issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info431.htm.

TWST: How do you convince an investor to disconnect the “death by association” that communications companies have with the failure of many CLECs and emerging telcos, along with the failure of the Internet infrastructure companies to take full advantage of all the capital they have invested over the past three to five years? We went through this bug build-out and nobody showed up.

Mr. Grover: There are some things you can point to that are signs of hope. One sign is that traffic continues to swell. Even the most bearish predictions call for traffic growth of 100% year over year, and studies of individuals who are very well-regarded in the industry suggest that it’s actually growing at 300%-400% — depending on how you measure it. So whether you want to take the low end of that range or the high end of that range, it’s still growing at a tremendous clip. Also of importance is the thesis that emerging telecom providers of bandwidth actually lead the tech cycle. They have to get healthy as a group before any of the other parts of the value chain can get healthy, and before any of the contractors, OSS vendors, equipment providers, software companies, manufacturing companies or chip companies can get healthy. Because network-centric computing is the paradigm shift that drives the whole tech sector now — in our view — you would want to buy the leading indicator for all those other sectors, and that is the emerging communication service provider space.

If you’re risk-averse in this market, there are still ways to play the space and reap pretty solid returns on a risk/reward basis. First of all, there is the high end of the whole sector, and that’s really WorldCom (Nasdaq:WCOM). One last name I would point out, from a series of companies we would urge people to look at, is Allegiance Telecom (Nasdaq:ALGX). They’re run by Royce Holland, who was the number two in command behind Jim Crowe at MFS UUNET. Allegiance has a solid CFO, Tom Lord. He’s an ex-telecom investment banker. The company is overfunded for its business plan by over $150 million, according to our math. Allegiance is a second-generation competitive local exchange carrier that uses a combination of company-owned facilities, leased facilities and, in some cases, very infrequently, re-sold facilities to target small businesses. This is commonly referred to as a “smart build,” since it allows Allegiance to minimize up-front capital expenditures, reduce the risk of entering an underperforming market, accelerates cash flow, and improves returns on invested capital. By the end of this year the company should complete its 36-market build-out across the US. Allegiance has over a $1/2 billion run rate in revenues. It has over 1,300 sales reps facing customers in all of these markets, so it’s a direct sales model. Fewer than 5% of revenues are from long distance. It’s very heavily driven by sales of local lines, which at the end of the day is what you need to focus on if you want to own the customer and ultimately cross-sell data or long distance to that customer. Allegiance’s free cash flow is improving significantly as it completes its 36 markets and turns additional cities EBITDA-positive, excluding corporate overhead. You’re going to see a very strong trajectory in terms of free cash flow generation within the next 18 months, according to our estimates. We estimate Allegiance will turn EBITDA-positive on a consolidated basis in 3Q02.

This special conference issue includes:

1) Outlook for Emerging Communications - In an in-depth (2,400 words) Analyst Interview, Craig D. Kaufman, Chairman and CEO of Kaufman Bros., L.P., examines the outlook for the sector and shares specific stock recommendations.

2) Emerging Communications: An Overview - In an in-depth (4,800 words) Analyst Interview, Vik Grover, Managing Director of Equity Research at Kaufman Bros., L.P., examines the outlook for the sector and shares specific stock recommendations.

3) Wireless Services & Carriers - In an in-depth (1,300 words) Analyst Interview, Douglas Makin, Investment Analyst for Kaufman Bros., L.P., examines the outlook for the sector and shares specific stock recommendations.

4) Network Infrastructure Services - In an in-depth (2,800 words) Analyst Interview, Erik Warren, Vice President of Equity Research at Kaufman Bros., L.P., examines the outlook for the sector and shares specific stock recommendations.

5) CEO interviews (average 2,500 words). Top management of thirty-one sector firms examine the outlook for their firm and the sector.