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To: William F. Wager, Jr. who wrote (49)	11/19/1999 10:10:00 AM
From: William F. Wager, Jr.	Respond to of 60

Investors Buy Cell-Phone Stocks That May Be Takeover Ready November 19, 1999 By NICOLE HARRIS Staff Reporter of THE WALL STREET JOURNAL As the cell-phone business heats up, investors are scrambling for the few wireless performers they believe are takeover bait for telecommunications giants. Portfolio managers already have dialed up fat profits dabbling in wireless stocks: Over the past two years, these shares have more than quadrupled, far more than the 48% gain in the Standard & Poor's 500-Stock Index. But the best could be to come: The swiftest way for big telecom companies to grab more customers and fill in coverage gaps is through acquisitions. "The growth in wireless is like two tidal waves coming at you," gushes Mario Gabelli, manager of Gabelli Asset Management Funds in New York. "The first is driven by demand for the services, but on top of that you have a global-consolidation play. As an investor, we want to participate in those tidal waves." That's why Mr. Gabelli has accumulated 6.2 million shares, or about 11%, of the common stock of Telephone & Data Systems of Chicago, which holds a majority stake in rural cellular provider U.S. Cellular, also in Chicago. Among the most likely acquisition cell-phone targets: VoiceStream Communications, Bellevue, Wash.; Powertel, West Point, Ga.; and Nextel Communications, Reston, Va. Smaller companies such as Rural Cellular, Alexandria, Minn., also could attract bidders. Some of these companies, such as Powertel and Nextel, say they want to remain independent. "We've got the resources and determination to become a global leader in what promises to remain the fastest-growing segment of the telecommunication industry," said Tim Donahue, Nextel's president and CEO. Yet each company boasts a fast-growing business in a market attractive to telecom giants here and abroad. Still, their businesses represent a mere fraction of a much bigger puzzle. Consumers want to use their cell phones whenever and wherever they travel, and the world's biggest phone companies want to own the networks that provide such service. AT&T, SBC Communications, and international giants such as Germany's Deutsche Telekom are potential suitors looking to broaden their wireless holdings. The pending acquisition of Sprint by MCI WorldCom demonstrates that even the most successful telecom companies need a significant wireless presence. The battle to control wireless services is also at the heart of Vodafone AirTouch's bid to acquire Germany's Mannesmann. More broadly, consolidation echoes increased merger activity in other industries. From financial services to airlines, companies are rushing to extend their geographic reach to become one-stop service areas. The extra heft from acquisitions also enables corporations to negotiate sweeter deals with suppliers. There are problems, as well. Wireless companies are hard-pressed to ensure their wireless networks can sustain additional traffic. And as competition continues to drive down prices, carriers must cope with fickle consumers who switch providers for cheaper calling plans. Yet wireless stocks have come a long way. Two years ago, investors were concerned that new entrants, so-called personal-communication services (PCS) players or digital cell-phone operators, that hawked bulk minutes at low flat rates would destroy the price structure. Some worried there wouldn't be enough consumer demand to support the carriers. "You couldn't give these stocks away a few years back, but things are rosy in the wireless world today," said Salvatore Muoio, manager of SM Investors LP in New York. Mr. Muoio is a major holder of cell-phone stocks including Price Communications, a New York wireless firm that owns wireless assets in the Southeast. He expects further consolidation. He says Price Communications may be a good fit for AT&T as the phone and cable giant seeks to fill out coverage. What happened? For one, the PCS companies that investors worried would ruin the business instead lured millions of new customers. Digital phones also offered new features such as voice mail, paging and improved battery life. Faced with significant challenges to their fledgling wireless businesses, AT&T and Sprint created digital services. They rolled out flat-rate deals that enabled customers to use their phones anywhere in the country without paying roaming charges or long-distance fees, boosting demand. "The companies that we're invested in are the companies that are seeing better revenue per subscriber numbers," said Robert Donahue, co-portfolio manager of the Salomon Brothers Capital Fund in New York. Mr. Donahue said his largest position is in Rogers Cantel Mobile Communications, Canada's leading wireless provider. As of the Nov. 8, 3.9% of the fund was invested in Rogers Cantel. Now the wireless business is driven by the quest for a national footprint. In June, VoiceStream agreed to buy fellow digital cell-phone operator Omnipoint Communications in Bethesda, Md., a company serving the Northeast. Three months later, VoiceStream disclosed plans to buy Aerial Communications, a Chicago-based wireless company that boasts extensive licenses in the Midwest. The acquisition agreements boosted Powertel shares. All four firms use a technology called Global System for Mobile Communications, or GSM, which dominates Europe. Many treat VoiceStream's pending purchases as a critical consolidation of domestic GSM companies. Powertel, with 438,000 customers, would give VoiceStream coverage in key Southeast markets. Now that VoiceStream has expanded its reach, it could prove attractive to European telecoms eager to enter the U.S. wireless market. Among those that have indicated their intentions to buy in the U.S.: Deutsche Telekom, which is strongly present in Germany and has smaller interests in Russia and Eastern Europe.