Credit Suisse First Boston Corp. initiated coverage on the paging industry last month, issuing a report titled “Where’s the Beep?”-written by company vice president Cynthia Motz.
In the report, the company stated its belief that the industry will not experience significant subscriber or revenue growth in the future, but that the paging industry will remain a viable one.
“With the exception of certain specific areas such as alphanumeric, two-way or other enhanced messaging products that may evolve in the future, we believe overall subscriber growth will remain relatively flat and will likely even contract over time as more of the world takes up (rather than adds or evolves to) wireless telephony and integrated products,” read the report. In other words, personal communications services won’t steal current paging customers but may distract potential new ones.
Financially, Credit Suisse said it does not believe the industry is undervalued. Stock prices are well below their 1995 high and likely will never return to that level, the company said. However, the industry will never die, it continued, even though it expects subscriber numbers and revenues to contract after 2001.
Credit Suisse used MobileMedia Corp. as a metaphor for the entire industry. Despite its bankruptcy, the company still claims more than 3 million customers, “which serves as a testimony to the statement that it is not easy to kill a paging company once it is up and running. Part of the reason is that once an operator has a network established, it just sits back and collects the revenue as subscribers use their units. Unless there is a problem with billing or customer service, the customer is unlikely to even notice that the paging company is bankrupt as long as service remains good.”
If anything, Credit Suisse believes MobileMedia could emerge from Chapter 11 as a significant force to reckon with, as it will have reduced its debt considerably during the restructuring process, and debt-to-cash ratio is the new ranking standard for the industry.
The report noted that the industry is in the midst of changing its focus-from cheap communications provider to wireless information provider-and that this shift is a positive one for the industry. Yet, “it is difficult to bet on an industry that must change dramatically to survive and, hopefully, prosper.”
Of the various publicly traded paging companies, Credit Suisse initiated coverage on Paging Network Inc., with a recommended Buy rating, and Arch Communications Group Inc., recommended Hold. It praised PageNet’s reorganization plan, which Credit Suisse believes will bring the company to profitability, as well as its size, spectrum and low-cost structure. Credit Suisse also gave kudos to Arch’s network, customer service and management, but pointed to its debt burden as reasons for the Hold.
