NEW YORK-As the telecommunications industry moves toward offering a broader array of bundled services, Wall Street needs to move away from its outmoded, one-size-fits-all criteria for evaluating cellular companies.
This was the challenge Steve Leeolou, chief financial officer of Vanguard Cellular Systems Inc., Greensboro, N.C., last week issued to the investment banking and securities analyst community. Leeolou was part of a panel discussion at a conference on “Wireless Telecom Values and Finance,” sponsored by Kagan Seminars Inc. of Carmel, Calif.
With little extra capital expenditure, Vanguard is rolling out a wireless Cellemetry service through Bell Atlantic Nynex Mobile for Pennsylvania Power & Light Co., he said. Some 40,000 meters, each providing revenue of $3 per month, will be added to Vanguard’s customer base.
In a situation like this, the conundrum facing both the wireless communications industry and the investment community that evaluates it, is whether to count the utility as a single customer paying $120,000 monthly or as 40,000 customers paying $3 monthly, Leeolou said. This example is a harbinger of similar accounting situations likely to arise as wireless telecommunications carriers offer customers a variety of new services, including data, paging, short messaging, local loop service and Internet access that are key to increasing both revenues and profit margins. Even Vanguard is having difficulty at the moment sorting out the count, he added.
“Evaluations are skewed because we need to account for the number of minutes, not the number of customers,” Leeolou said.
“Then it will behoove the cellular carriers to release information about minutes, which they have withheld for the last several years,” responded Sharon Armbrust, senior analyst for Paul Kagan Associates Inc.
In the Internet access arena, a key area of future profit potential for cellular carriers, Leeolou also predicted an acquisition trend. “Don’t be surprised to see companies like us doing acquisitions of Internet companies in order to leapfrog into this access to data,” he said.
Leeolou, who sees a profitable role for wireless carriers as alternatives to, or resellers of, wireline local loop service, also sparred verbally with Clint McClellan, analyst for Dataquest Inc., San Jose, Calif.
“In three years time, wireless carriers will get into wireline when infrastructure providers are able to bill wireless and wireline on one bill,” said McClellan.
When that development occurs, however, McClellan predicted, “free (wireless) minutes will have to go away because, at 40 percent penetration, the systems will crash because of overuse. Wireline will always be cheaper, so it behooves the wireless industry to keep as much on wireline as possible to save the wireless networks.”
By contrast, Leeolou said if Code Division Multiple Access technology works, it will so enhance wireless communications capacity that wireless carriers will be able to compete on price for local loop service with wireline carriers.
Leeolou also said he sees “reselling of local loop service as a primary driver of (profit) margins” for wireless carriers.
