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We reiterate our long-term Neutral recommendation on NII Holdings Inc. (NIHD - Analyst Report) based on its low-level of current valuation and recent strategic decisions.

Why Kept at Neutral?

NII Holdings continues to perform poorly. On a GAAP basis, the net loss in the reported quarter was $207.5 million or $1.21 per share compared with a net income of $13.6 million or 8 cents per share in the prior-year quarter.

Quarterly total revenue was $1,413.4 million, down 13.5% year over year and also below the Zacks Consensus Estimate of $1,451 million. The dismal result was due to higher churn, weaker exchange rate, lower ARPU and higher operating expenses.

Nevertheless, NII Holdings aims to complete 3G network deployment in Brazil and Mexico, improve operational performances and realign its business to enhance return over the long term. The company is also deploying 3G network in Chile and plans to add 4,400 3G cell sites in 2013.

Risk/Reward Virtually Balanced

NII Holdings has already started offering 3G services in Mexico and will launch the next generation service on a wide basis in Brazil by the second half of 2013. This is expected to boost subscriber growth. NII Holdings continues to transfer customers from iDEN to 3G in Mexico and plans to cover 33% of the country by 2013.

Recently, NII Holdings has joined Motorola Mobility, a division of Google Inc. , to launch Atrix HD smartphone in Mexico. With Atrix HD, Nextel Mexico customers will be able to enjoy the push-to-talk service with a high-end smartphone. Additionally, we believe that the stock is currently undervalued as the stock has plunged nearly 85% in the last year.

NII Holdings is phasing out its iDEN network and consequently integrating its new Push-to-Talk (PTT) technology, thus, driving expenses. Key competitors like America Movil S.A.B. de C.V. (AMX - Analyst Report) and Telefonica (TEF - Analyst Report) have completed the rollout of 3G services in major Latin American countries. However, NII Holdings lags far behind its competitors in 3G network deployment.

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