Re: Wireless Cable (more than you wanted to know)
PW -
I offer the following to add some context about the wireless cable field. It's not a critique and it's not a challenge, so don't get uptight. It's an effort to add some of the perspective of familiarity with the field since its inception. As we all know, stock prices may behave very differently than the trend of business facts. Where the industry is going, however, may not be irrelevant to price performance.
IMHO, the underlying reason for wireless cable company stocks tanked during the past year is that highly-successful public offerings in the area during 1993-95 were based on projections of substantial subscriber increases in the then-immediate future. At that point (and still, today) wireless cable companies could assemble some 33 channels of over-the-air video channels out of FCC-licensed microwave frequencies for alphabet-soup communications services like MDS, MMDS and OFS (all commercial video) and ITFS (instructional school-related video). Since wired cable companies seemed to be pretty competition-free, with increasing charges and a bad service rep, it was believed that competent entrepreneurs who could, in a 3-6 month period of time, blanket a sizeable market with 33 channels of cable-like service for 20 to 35% lower prices than wired cable, might be successful in garnering a 5-15% share of the market -- enough to make the venture profitable, given lower-than-wire-cable capital costs.
Problem was, the expected growth in subscriber base didn't happen as much or a quickly as initially expected, and the Street become disenchanted -- particularly when other competitive local multichannel entertainment providers (e.g., direct satellite broadcast) seemed to be targeting the same market. At the same time, while HART successfully worked its niche rural markets with 33 channels, other companies targeting sizeable urban markets (e.g., CAWS, PCTV, American Telecasting, Wireless One) began seeing the imminence of digital technology (which could increase the number of channels deliverable over the same frequencies to more than 100), and slowed down (or stopped) investment in existing (analog) system expansion. Subscriber growth basically plateaued in 1996, and companies like PCTV publicly announced their intention not to aggressively market their services in new areas until a conversion to digital.
Since FCC approval for use of digital technology in wireless cable didn't happen until the Fall of '96, and equipment to provide wireless service wasn't projected to be generally available until some time in 1997, the wireless stocks continued their nearly 18-month drift downwards (PCTV, for example, IPO'd in the mid-teens, ran to 30+, and continuously declined thereafter).
Investors during the second half of 1996 saw some signs that temporarily propped up their short-term hopes. Some of the Bell companies -- seeing wireless cable as a way to quickly implement their entitlement to compete with entrenched cable companies under the then-new Telecommunications Act -- showed sudden interest in acquiring (or, in the case of CAWS, joint venturing with) existing wireless cable companies. The short-term play was now betting that the wireless guys would make money being bought out by, or partnering with, deep-pockets telephone companies. But at year's end, when the Bells essentially pulled out of the CAWS venture, and another Bell company abandoned its independent pursuit of a wireless cable strategy, that ray of hope was diminished, if not dashed. When added to such earlier events as the announcement by Alex. Brown -- which had been a staunch cheerleader for nearly three years -- that it was reversing its view of the new industry, the stocks absolutely crumpled. The strong, like PCTV, took it on the chin along with CAWS. But the basis for the price collapse had long since been laid.
The real question now, of course, is where the industry goes from here. There are a lot of good signs. BellSouth continues its investment in wireless cable (e.g., New Orleans, Atlanta). A telco roll-out of the first digital system is expected as early as April. The FCC recently granted CAWS limited permission to experiment with 2-way transmissions in Boston (a development which, if successful and expanded, could be extremely positive, since it would open up a potential, for example, for local-telephone-like wireless Internet access services). And digital equipment for the industry may be in full production by mid-year.
On how the stocks'll behave, I'll leave those guesses to PW and others. But it's my bet that while pieces of positive news for the industry are likely during the next two months -- with whatever short term effect on the stocks they might bring -- longer term investors familiar with the field are still gonna wait for subscriber numbers, and proof that these companies can be competitive and profitable. And that ain't gonna happen before the end of this year, at best.
I could, of course, be completely wrong. You still awake? |
