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The Wall Street Journal Interactive Edition -- December 1, 1997
AirTouch May Fall Short
Of Goal to Double Stock Price
By STEPHANIE N. MEHTA
Staff Reporter of THE WALL STREET JOURNAL
When AirTouch Communications Inc. spun off from Pacific Telesis Group in
1994, the new company's chairman Sam Ginn boldly predicted that the
wireless carrier would double its stock price to $46 a share by the end
of 1997.
At the time, that goal seemed attainable. The bull market was in full
swing, and AirTouch dominated the lucrative California cellular market.
Underscoring its optimism, the company promised to award most of its
employees with stock when the share price doubled through a program
called "2x4" -- shorthand for doubling the stock's initial public
offering price in four years.
But as 1997 draws to a close, AirTouch appears unlikely to meet its
goal, a victim of a generally weak appetite for wireless stocks. While
AirTouch's stock has rallied recently, the investor enthusiasm may be
too little too late to help the company hit its $46 target. On Friday,
AirTouch shares rose 25 cents to close at $39.25 in New York Stock
Exchange composite trading.
Source of Frustration
AirTouch's lagging stock price has been a source of frustration for Mr.
Ginn, who orchestrated the carrier's separation from PacTel, the Bell he
once led. Freed from the regulated Bell, which was later acquired by SBC
Communications Inc., the more entrepreneurial wireless business was
expected to soar, creating value for AirTouch and PacTel shareholders
alike.
To its credit, AirTouch has met or exceeded many of the financial and
customer-service benchmarks it set forth at the time of its public
offering. In the third quarter, for example, the company reported
earnings of 25 cents a share, beating analysts' expectations by seven
cents a share.
Still, Wall Street remains skeptical of the entire wireless sector,
based largely on lingering questions about how carriers will fare in an
increasingly competitive environment. AirTouch and other cellular
players no longer enjoy a duopoly in their markets; upstarts granted
digital wireless licenses for personal communications services have
aggressively moved into the incumbents" territories with low prices and
promises of improved sound quality. "The dynamics of the market have
changed," Mr. Ginn acknowledged.
Undervalued by Wall Street
He said he believes the company has been undervalued by Wall Street,
particularly with regard to its international holdings. AirTouch owns a
stake in wireless carriers in Europe and Asia and is part of a
consortium that recently bid on licenses in Brazil. Most of its holdings
are in mature markets and deliver solid profits. "There was a tendency
on the part of analysts to discount our international properties," Mr.
Ginn said.
The disappointing stock price sometimes damped spirits at the San
Francisco-based company, as employees realized that they might not
immediately receive their restricted stock under the 2x4 program. "I
tried to explain that the market does not always react" to operating
results, Mr. Ginn said. He said he told employees: "What we need to do
is show that even with new competitors our performance is going to
continue to be outstanding."
The AirTouchers face increasing turbulence. Despite continued growth of
its U.S. operations, the cellular company must compete with its former
parent's unit, Pacific Bell, and start-ups such as Nextel Communications
Inc. AirTouch's big advantage -- customers' ability to use AirTouch's
analog phones anywhere in the U.S. -- will soon erode as competitors
begin selling so-called dual mode phones that also work nationwide. "It
will level the playing field between AirTouch and its competitors,"
noted Walter Piecyk, a telecommunications analyst with PaineWebber Inc.
Nationwide Footprint
At the same time, many analysts believe national players will come to
dominate the wireless industry, adding to longstanding questions about
whether AirTouch will sell eventually to Bell Atlantic Corp., its
partner in PrimeCo Personal Communications, a PCS carrier. Together, the
carriers would have a nationwide footprint, allowing them to compete for
big, corporate contracts alongside AT&T Corp., Sprint Corp. and Nextel.
AirTouch and Bell Atlantic declined to comment on merger speculation,
though both companies pointed out that they already have roaming
agreements and a joint-purchasing venture that allows the carriers to
get volume discounts on purchases of handsets and telecommunications
equipment.
Even if AirTouch stock fails to hit $46 by the end of the year, the
company's employees may still get their restricted stock. At Mr. Ginn's
behest, the board agreed to award employees their shares if the carrier
meets a variety of goals for 1997. In the future, he said, AirTouch
isn't likely to tie employee performance and stock bonuses to its stock
price.
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