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A Telecom Capital No Longer

Washington investors know the list of casualties all too well. PSINet Inc., once the biggest Internet network, and Teligent Inc., the company that was going to make wires obsolete by linking offices through wireless networks, both are gone. Other local telecoms are in the limbo of Chapter 11 bankruptcy reorganization.

Many of those companies were taken down by the very government regulations that created their business. Cleland said misguided government policies triggered the telecom crash. Encouraged by Washington policymakers, too many firms built fiber-optic networks and too many decided they could compete against the local phone companies.

(Xm Satellite Radio)

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As the strongest survivors of that debacle, Nextel and MCI are leading the consolidation of the industry, which is likely to lead to the sale of some of the smaller players in the region.

The only really revolutionary communications company left in the Washington area is XM Satellite Radio Holdings Inc., which has yet to turn a profit, but has made an enormous amount of money for investors in the past two years. XM stock is up 44 percent over the past 12 months after gaining 877 percent in 2003.

In the fall of 2002, when it looked like XM might not make it, the stock fell as low as $1.75 a share. XM stock closed Friday at $32.62 after hitting $40 a share before technology stocks pulled back this year.

XM has signed up 3.2 million customers for its pay-to-listen satellite broadcasting service and expects to pass the 5 million mark by year-end.

The question for investors now is not whether XM will survive, but whether its stock is overpriced. Despite such reservations, XM is rated as "buy" by 14 of the 25 analysts whose ratings are reported to Bloomberg.

Just four other local telecom stocks have produced positive returns for investors over the past 12 months:

• First Avenue Networks Inc. of Charlottesville, up 279 percent. First Avenue acquired the fixed-wireless operations of Teligent after that company went into bankruptcy.

• Essex Corp. of Columbia, up 133 percent. Essex's niche as a provider of high-security communications for the Defense Department and other government agencies makes it more of a defense contractor than a communications company.

• NII Holdings Inc. of Reston, up 65 percent. Formerly known as Nextel International, NII offers Nextel-brand wireless service overseas, primarily in Latin America.

• Visual Networks Inc. of Rockville, up 2.6 percent, Visual Networks makes equipment for monitoring and managing fiber-optic networks.

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