NEW YORK-The investment community is taking a second, less optimistic look at paging, at least in the near term, given ProNet Inc.’s recently announced troubles-the latest unwelcome news in this wireless sector.
Some paging companies, among them Arch Communications Group Inc. and Paging Network Inc., are indeed meeting the goals they’ve set. But they, too, are feeling the ripple effect of other paging companies’ problems.
“You have to live and die with your group of comparables,” said Samuel S. May, research analyst for Pacific Growth Equities, San Francisco.
The collective share prices of a basket of paging industry leader stocks fell by 32.5 percent from May 2 through June 26, according to Perry Walter, wireless communications analyst for The Robinson-Humphrey Co., Atlanta. Included in this calculation are: A+ Network Inc., Arch, Metrocall Inc., MobileMedia Corp., PageNet and ProNet.
ProNet officers announced June 21 that they expected to close the second quarter June 30 with significantly lower than projected cash flow, largely due to price competition from other carriers dealing with the same reseller channels. Final results will be released late this month.
ProNet also, “got tripped up in the consolidation trend,” May said.
According to a Paging Industry Update issued by Prudential Securities Corp., New York, “the issues confronting both MobileMedia and ProNet appear to stem from wrong assumptions regarding the quality of acquisitions made in 1995. Therefore, the prices paid for those acquisitions appear, in hindsight, to have been too high.”
In late May, ProNet sold $100 million in stock and $120 million in debt to help finance its acquisition of Teletouch Communications Inc. According to Prudential, this acquisition appears uncertain, given the decline in ProNet’s stock price coupled with its commitment to pay at least $20.75 per share for 2.6 million shares of Teletouch.
“The problem goes deeper than ProNet,” Walter said. “Early this year, Metrocall had a major upper management change. In April, MobileMedia said its cash flows were lighter than expected, and in early June lowered its projections due to problems with churn and integrating new acquisitions. Mtel (Mobile Telecommunication Technologies Corp.) is having trouble with two-way paging.”
According to May, the paging sector is feeling the growing pains of its transition to a mass market service from one used primarily by and for business. But each individual company’s transition difficulties has had a cumulative effect on outside perception of the entire sector, with ProNet’s recently announced troubles serving as the proverbial last straw on the camel’s back.
The situation, “culminated with ProNet, which has a reputation as having one of the most credible management teams in the paging industry,” Walter said.
Paging stocks already had taken a pounding over the past nine months, “down nearly 40 percent on a relative basis,” according to the Prudential report by Michael Elling, Bo Fifer and Michael Turits. “In hindsight, it appears that the consolidation in the industry, the roll-out of high-capacity FLEX systems and the development of nationwide reseller and fulfillment programs, particularly by industry leader PageNet-once viewed as overall positives for the industry-have all had unintended consequences on operating cash flows for companies going through transitions in 1995 and 1996, particularly MobileMedia, Metrocall and now ProNet.”
