Powertel Inc.’s stock tumbled nearly $12 last week after VoiceStream Wireless Corp. Chief Executive Officer John Stanton said his company has no immediate plans to acquire any more GSM operators in the United States.
Powertel’s stock had been riding in the $68 range on merger speculation. The company’s shares were down 17.5 percent on heavy volume last Tuesday as investors overreacted to Stanton’s comments, analysts said.
“We do not believe any additional deals are necessary to accomplish our national strategy,” Stanton told analysts during VoiceStream’s third-quarter conference call last week.
VoiceStream already has agreed to merge with Global System for Mobile communications regional players Omnipoint Corp. and Aerial Communications Inc. The deals are likely to close in the first quarter.
While Powertel’s solid Southeastern footprint would fill in critical holes for VoiceStream’s nationwide strategy, analysts point out Powertel is operating successfully as a regional operator. A merger may not be needed in the near future, especially when 90 percent of Powertel’s traffic is initiated and terminated within its own footprint.
“This company is financed through free cash flow positive,” said David Freedman, analyst with Bear, Stearns & Co. in New York. “They are succeeding as an individual carrier.”
Powertel is expected to be the first U.S. personal communications services operator to reach positive EBITDA, or operating cash flow, and the carrier’s capital structure is solid, unlike financially struggling carriers Aerial and Omnipoint, analysts point out. Powertel is fully funded through 2001.
Powertel President and Chief Executive Officer Allen Smith declined to comment on any merger speculation during the company’s quarterly conference call with analysts. He added, however, that ubiquity of service will become more important going forward as consumers are offered more data services and expect to use them nationwide.
“Ubiquity for data is much more of a need than voice,” said Smith. “Customers want data to work nationwide and internationally … That’s how they place value on the services.”
Powertel’s third-quarter results gave analysts more confidence in the regional operator. EBITDA loss for the third quarter was $8.9 million, compared with $15.5 million in the second quarter, even though the carrier ramped up subscribers. EBITDA is a key indicator of a company’s future profitability and should ease investor concerns over access to capital once it becomes positive.
“EBITDA success was largely driven by controlling marketing and advertising costs,” said Rod Dir, chief operating officer with Powertel. “We have a lot of focus on reducing network costs and a lot of focus on bringing bad debt down. Those areas of line-item by line-item focus brought our costs under our expectations.”
Powertel said it added about 56,000 subscribers during the third quarter, ending the period with about 438,000 customers. Net new PCS customers on postpaid service plans totaled about 27,000 subscribers while net new prepaid customers reached 29,000. Total revenues reached $72.4 million, compared with $62 million in the second quarter. Net loss was $58.9 million, or $2.10 per share. Postpaid churn was 2.7 percent.
Average revenue per subscriber was $50.89, compared with $48.30 the previous quarter. Prepaid ARPU fell to $46.40, compared with $51.05 in the second quarter. Powertel said it introduced a $10 prepaid card to help reduce prepaid churn, which dropped from 8.3 percent in the second quarter to 5.1 percent in the third quarter.
“Churners, I think, are coming back to the market because we’re offering $10 increments,” said Smith. “We’re willing to make some trade-offs on some potential ARPU to get customers back. A decision at $30 may not be one that is feasible. It will help us realize a return on those phones that we previously reported as churn.”
