Can You See Me Now? A Small Play on a Big Wireless Upgrade

By Michael Brush
April 13, 2006

When you watch a movie that’s even just a few years old these days, one thing stands out: The cell phones are just too darn big.

Wireless providers have done a great job of miniaturizing the handsets. Now for their next trick: Over the next few years, they hope to send movies themselves through those cell phones. They want to pipe other “multimedia” services through handhelds as well -- like music and interactive games.

But none of this will work unless the wireless providers can get the bugs out of their networks so that those annoying signal drops have gone the way of oversized cell phones.

After, with so many other places to catch a movie or sitcom, who is going to put up with disruptions in the latest episode of "Desperate Housewives" on a cell phone when you can see the show without hiccups over the Internet or on TV?

That’s where LCC International (LCCI) comes in. For years, this tiny Mclean, VA -based company has been advising wireless providers around the globe on the best way to design networks – and helped them install and maintain them, as well.

Now under the leadership of Dean Douglas, who took the helm last October, the company hopes to focus more on the higher-margin consulting work – just as wireless providers face their next big challenge of installing broadband pipes to accommodate new multimedia services.

Douglas brings experience in wireless technology garnered while working at a Cisco (CSCO)-Motorola (MOT) joint venture called Invisix. He also worked with the IBM Global Services division of International Business Machines (IBM).

Can you see me now?

“As the carriers begin to move into multimedia applications, they will need to start thinking about reliability,” says Douglas. “Network reliability is critical.” Douglas believes LCC International can draw on its deep bench of radio frequency engineering expertise to help the wireless companies hit the right levels of reliability.

The company has already worked on projects with high-profile players that needed enough networks reliable to carry entertainment. LCC International helped XM Satellite Radio Holdings (XMSR) design and build its satellite network. It has also already done work with Nextel and Cingular Wireless work on developing advanced networks.

But will LCC International continue to win deals as wireless providers rush to install broadband pipes so they can offer multimedia apps? I can’t say for sure, but insiders seem to think so. And that is always a good start. Since December insiders have purchased $220,000 worth of LCC International stock for prices between $2.95 and $3.28. But the lion’s share of the buying occurred in the $3.18 to $3.28 range, not too far below recent levels of $3.70.

To be sure, the company is tiny -- with a market cap of just $67 million. On the bright side, this means the company is off the radar screen for lots of investors. So there is plenty of money on the sidelines to come into this stock if the company really does catch the wave of coming upgrades at the wireless providers. LCC International still looks cheap with a price to sales ratio of just .46.

Meanwhile, the company has a decent amount of cash to tide it over while it changes direction. It recently had around $14 million in cash or 57 cents a share. The company also has a decent backlog of at least $79 million worth of business.

Big-picture trends

Here is a summary of some of the of the main sector trends that may drive growth for this company:

Wireless providers are looking to offer multimedia services like mobile TV and music, interactive games, voice over IP (VoIP), and multimedia messaging -- which allows wireless users to swap messages that combine text, image, sound and video. But to do so, they have to turn to technologies like 3G and WiMAX to get more high-capacity bandwidth. “The move to broadband and 3G will be a big shift for carriers and it will be a big thrust for our business,” says Douglas.

Wireless providers have consolidated in recent years, with Cingular Wireless and AT&T Wireless Services hooking up, as well as Sprint and Nextel. They are stretched by the demands that come from merging their businesses. So they are looking outside for help, says Douglas. “Consolidation presents huge opportunities because the carriers are constrained for resources,” says Douglas. “Radio frequency resources are constrained to begin with.”

Gone are the days when wireless providers bought spectrum at any price. These days they have to be smarter about what they pay. LCC International has tools that can help them figure out in advance what it will cost to build out networks – a process known as “dimensioning,” in the business. “We are the only entity that has those dimensioning tools,” says Douglas.

The bottom line: This company bills itself as having the know-how and experience to help wireless providers reach the next level of service offerings – and the insider buying backs it up. Meanwhile the stock looks cheap, and the company has enough cash to tide it over while it reaches to make the transition. I would buy right here.

Disclaimer

At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.

For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.