Two articles related to wireless in Monday's IBD.
Second article ..
BellSouth Ready For Life After Phone Deregulation
Investor's Business Daily -- 9/21/98
by Reinhardt Krause
Why are shares of BellSouth Corp. trading at a premium compared with those of the other regional Bells?
How's this for starters: BellSouth's a candidate for a merger, its cellular business is expanding fast overseas and its earnings growth stands out among the Baby Bells.
All three reasons - and several others -help explain why BellSouth's shares are 30% to 35% above those of other local phone companies, say industry analysts.
That's despite the fact that BellSouth is dealing with the same regulatory mandate as all the other regional Bells. Its core business in nine states is expected to erode as local phone markets are opened up to rivals under the 1996 Telecommunications Act.
''As we see more competitive impact in our local business, we're delivering growth from other investments,'' said Ronald Dykes, BellSouth's chief financial officer.
Atlanta-based BellSouth's net income rose 13% to $1.6 billion in the first half of '98, up from $1.4 billion a year earlier.
Cellular revenue overseas is a big factor in Bell South's success, Dykes says. Overseas cellular investments rose 54% to $901 million in the first half of '98, up from $584 million for the same period in '97. Those sales include Germany, Denmark and Israel. BellSouth has signed a deal to sell its cellular business in New Zealand.
BellSouth also is taking a cue from its own name and heading toward the equator to grow its wireless business, analysts say. While the Far East's economic woes are causing concern in other emerging markets, there's plenty of pent-up demand for phone service in Latin America, the company says. BellSouth's cellular revenue there has soared 79% to $585 million for '98's first half, up from $327.5 million in '97.
''There's limited capital risk, and the growth rates are phenomenal,'' said John Sini, financial analyst at Merrill Lynch & Co. in New York.
BellSouth's wireless holdings include ventures in Argentina, Chile and Venezuela. Last year, it placed a big bet on Brazil. BellSouth led a consortium that bid $2.5 billion for a wireless license in Sao Paulo, Brazil, the country's biggest market, with 18 million people.
Early results look encouraging, analysts say. BellSouth started service in Brazil in mid-May, with a waiting list of 2 million subscribers. It had 535,000 in service at the end of August, Dykes says.
While the wireless market overseas looks promising, BellSouth's cellular business in the U.S. is under pressure. In the first half of '98, BellSouth's U.S. cellular sales grew to $1.3 billion, up only 5.3% from $1.2 billion a year earlier. New players are trying to
grab market share, driving down monthly rates.
BellSouth plans to build new domestic data networks, which are used for both voice and Internet traffic. Two other Bells, US West Inc. and Bell Atlantic Corp., have grabbed the limelight in targeting data services.
BellSouth will disclose more of its data strategy at a meeting with financial analysts in New York in early October, Dykes says.
''Nobody would have a more complete set of data assets - switches and fiber - than we do,'' he said. ''Our digital services business is growing at about 45%.''
Data revenues jumped to $432 million in the second quarter ended June 30, up from $300 million a year earlier, BellSouth says.
Most of BellSouth's capital investments are going into building up data links between cities in its region. But it also may partner with a company operating a national data network, Dykes says.
''We have an interest in data assets that we don't have today. (We'll) acquire, build or somehow access those assets to fulfill our customer expectations,'' Dykes said.
A bigger network would come in handy when BellSouth can offer long-distance service.
Like the other Bells, though, it's still waiting for a green light from the Federal Communications Commission. To gain approval, the Bells must show they've taken concrete steps to create competition in local phone markets.
For new entrants, BellSouth's most attractive markets to attack are high-density cities like Miami and Atlanta. Rivals tend to target small and midsize businesses first.
On the other hand, BellSouth can recoup revenue by getting into long-distance. It may be able to use its brand name to package wireless, long-distance and Internet services, analysts say.
The FCC turned down BellSouth's first application to offer long-distance in Louisiana last year. But Dykes says BellSouth will try again soon, most likely seeking approval for a big state like Georgia.
While Bell Atlantic Corp. and SBC Communications Inc. are forging ahead with mergers, BellSouth is taking care of business solo - for now.
Bell Atlantic acquired Nynex Corp. last year. In July, it announced a merger with GTE Corp. SBC snapped up Pacific Bell in '97. It announced a $57 billion deal to buy Ameritech in May.
Dykes claims any merger is unlikely until BellSouth gets into long-distance service. Industry developments, though, could change BellSouth's mind.
One of its main rivals in the South is Tampa, Fla.-based Intermedia Communications Inc., which could be acquired by a bigger phone company. An Intermedia-Bell Atlantic alliance is one scenario, analysts say.
But BellSouth is unlikely to make a hasty move, says Jeffrey Kagan, president of consultancy Kagan Associates Inc. in Atlanta.
''They won't be pressured into a merger or acquisition,'' he said. ''They're going to wait until there's an offer that's just too good to pass up for shareholders.''
When BellSouth is ready, Sprint Corp. looms as a possible merger partner, analysts say. Sprint combines a local phone business and long-distance service.
''They (BellSouth)) can remain independent for some time longer,'' said Boyd Peterson, analyst at market researcher Yankee Group in Boston, Mass. ''To the extent their cost structure (managing a network) can be improved through a merger or acquisition, I think they'll look at it.'' |
