After a year of declining prices on paging stocks, market values among the industry’s leaders are starting to stabilize.
“The bottom is here, the worst is behind us,” stated Michael Elling, senior analyst in Prudential Securities Inc.’s telecommunications group.
Carriers are beginning to rationalize capital spending, pricing trends aren’t getting any worse and carriers are talking about modest growth, explained Elling. Also, “the market is at a low base of expectations.”
However, paging companies are not out of the woods yet, Elling said. “Paging carriers need to become efficient, leaner, meaner companies.”
“The capital shortage is starting to create more rational behavior by the paging carriers,” commented John Beletic, president and chief executive officer of PageMart Wireless Inc. “We (PageMart and the industry as whole) are starting to see interest by fund managers that haven’t normally been interested in paging stocks,” said Beletic.
Going forward, stock values most likely will build slowly, Elling said. Elling believes the industry needs to-and will-consolidate down to three or four carriers. Those operators will be businesses with access to capital, marketing strength and nationwide networking and distribution assets. “We would expect to see a merger in the next quarter or two.”
“Today you have too many selling companies, not marketing companies,” said Elling. “Mtel (Corp.) is a good marketing company. I don’t know if anyone else in this industry is good at marketing.”
Who’s a likely candidate for acquisition?
MobileMedia Corp. Chase Manhattan recently invested another $200 million in MobileMedia, but Elling doesn’t think that investment was made for the long term.
This sum is merely life support and means to “focus and rationalize operations and get [MobileMedia] ready to consolidate at a reasonable value and reasonable shape,” said Elling. “Before, nobody wanted to touch it, at any price.”
When stocks started falling early last year, industry and investors suggested different reasons for why the trend occurred. SkyTel Corp. had network troubles. MobileMedia had all kinds of troubles. One theory for the declines-now staple rhetoric among some in the industry-is that Wall Street believes broadband personal communications services, complete with messaging capability, will cannibalize two-way messaging and paging.
“The people in the paging industry who propagated (that) myth in 1996 and continue to spread it in 1997 are the same ones rationalizing their own shortcomings,” said Elling.
Beletic said a chief contributor to stock devaluations was that “Wall Street supplied excessive amounts of capital for the industry that as a result depressed the true progress of profitability.”
Elling believes there is a solid market for two-way messaging, particularly in the realm of access to other valuable and established services. “If I am talking on the phone and want to know a stock price or download an e-mail, I’m not going to do it from the phone… People are not putting their hats on. They’re thinking statically, thinking that people use devices for the same [reasons].”
The winners will be the companies providing access to established valuable applications, through integration with wireline networks and platforms, Elling predicted. “What is a two-way alpha or text messaging device? It’s simply a repository of the Internet. The companies that recognize that will win. The guys that build entirely new platforms lose.”
“It’s important for us to continue to have strong performance. After time that continued performance will be reflected in the stock price,” said Jenny Haynes, vice president of investor relations, Paging Network Inc.
Contributing to PageNet’s success are low prices, spectrum capacity for new products and growth and unsurpassed distribution channels, via direct sales, resellers and third parties, said Haynes.
Some speculate PageNet’s low pricing is so low it devalues paging services across the industry. In response, Haynes said, “Our price structure allows us to have high margins, and that’s what we care about.”
