NEW YORK-Wall Street, once ebullient about wireless stocks, is somewhat gloomy these days about the prospects for new personal communications services carriers to raise public equity.
A convergence of global and local factors is at play in a situation that portends at least temporary troubles for new wireless players. The unanswered question, brought into sharper focus by the recent bankruptcy reorganization filing of C-block carrier Pocket Communications Inc., is this: Which players have or can obtain enough alternative capital sources so they can hold out until the public markets are more receptive?
On the domestic national securities market front, public capital markets are experiencing jitters about the possibility of inflation. Whether realistic or overblown, these fears lately have caused marked fluctuations and dips in key equities markets, including Nasdaq, the place where many high technology companies are or hope to be listed.
On the international securities market scene, deregulation of telecommunications markets in many countries means that foreign investors now have an increasing number of choices. Those options include companies much closer to their homes and in markets with lower penetration, fewer competitors and greater pent-up demand for telecommunications services.
“The broader global issue is that only a certain percentage of any portfolio will be invested in telecommunications, of which a percentage will be in wireless,” said Kevin M. Roe, vice president of U.S. equities research for ABN-AMRO Chicago Corp., New York. “Three years ago, you couldn’t buy wireless abroad, but now there are many operators globally.”
In the American wireless telecommunications arena, especially within personal communications services, Omnipoint Communications Inc. is regarded by the investment community as a test case for PCS. But the new pioneer’s preference PCS carrier has seen its stock dip below its initial public offering price.
“As long as Omnipoint trades below its IPO price, no one else will be successful,” Roe said.
In Roe’s calculus,
the general strength of the wireless sector accounts for about 60 percent of the ability of PCS companies to raise public equity capital, the condition of the overall stock market about 30 percent and the differences in prices paid per pop (population equivalent) about 10 percent.
Therefore, even if the stock market generally and the technology sector specifically were in good shape, which they aren’t at present, “it would be more difficult for C-block players than for new D- through F-block winners,” Roe said.
Michael Elling, senior telecommunications analyst at Prudential Securities Inc., New York, lays blame for the problems with wireless stocks in particular on several factors. The situation began with the pounding experienced by paging stocks that has had a ripple effect on the investment community’s view of wireless stocks generally.
“It’s been a bear market in wireless for more than a year,” Elling said. “I can’t convince the growth and momentum investors to buy; the momentum players that were in, in the early 1990s, are out. The telecom buyers haven’t bought wireless, generally, nor have the big cap buyers, except for Nextel (Communications Inc.) and AT&T (Wireless Services Inc.). The value buyers who buy because it’s cheap aren’t in there. Who do you rely on-the growth and value investors-and right now they’re shorting the sector.”
Shorting on Wall Street means attempting to benefit from anticipated declines in the price of securities.
Besides shorting of the sector by potential investors in the wake of paging stocks’ ripple effect, Elling blamed both the wireless industry and the securities analyst community for the problem.
Except for Microcell Telecommunications Inc. and NextWave Telecom Inc., Elling said new wireless telecommunications companies have failed to recognize their main competitive advantage. That is in becoming “high capacity minute factories” with prices low enough that wireless service becomes a reasonable consumer alternative to wireline service.
Elling also criticized his colleagues in the securities analyst profession. “Most analysts come out of the wireline and cable side, and there is very little in the way of historical analogs to wireless,” he said. “Wall Street simply isn’t doing fundamental analysis. Wireless-PCS, cellular-is access to wireline and SMR (specialized mobile radio) is access to two-way voice.”
