Good article on WCOM, SKYT, NXTL, etc. from The Street .COM
Sure, SkyTel's Sweet, but
Wireless Is What Matters
By Jim Seymour
Special to TheStreet.com
5/31/99 6:54 PM ET
Hey, it's a pretty good deal. Both as an observer of the telecom industry and as a shareholder -- I'm considerably
long the stock -- MCI WorldCom's (WCOM:Nasdaq) acquisition of SkyTel (SKYT:Nasdaq), announced Friday,
looks good on both sides. The price, $1.3 billion in WCOM
shares, a decent but modest premium over SKYT's
preannouncement market cap of about $1.1 billion, sounds
about right. The two companies should be a fit. Life goes on.
If I sound less than jumping-up-and-down-enthusiastic about
the deal, it's because ... well, I am. A lot less. We've been
waiting for the other shoe to drop -- but this isn't the shoe we
expected. Nor, WCOM holders had better pray, CEO Bernie
Ebbers' idea of the deal he needs to do.
With about 1.6 million subscribers, SkyTel is the leader in
nationwide paging, an increasingly profitable business. For
the first calendar quarter of this year, SKYT's revenues were
up about 15%, and profitability improved from a $13 million
loss to a $6 million profit, before accounting charges,
quarter-over-quarter. The real key to making money in the
paging market today is bumping your customers up to
higher-priced, value-added services, and SKYT has been
doing that -- for example, by introducing new options, and
pushing hard for customers to jump to the Motorola
PageWriter, a two-way device about the size of a fat wallet,
which can send messages from a tiny but usable
alphanumeric keyboard as well as receiving them. SKYT has
also been pushing costs down aggressively.
Nice job, SkyTel management; nice payback in the buyout.
The Street agreed, more or less: Both stocks closed up on
an odd, up-but-drugged preholiday Friday afternoon, though
WCOM slipped a little in after-hours trading. But nice though
the SKYT acquisition is, it isn't what WorldCom needs most.
For three years now Ebbers has been dissembling about
WorldCom's need for a major wireless partner or acquisition,
while deal after deal slipped away. Most recently, it was the
much-negotiated acquisition of Nextel (NXTL:Nasdaq),
which once again collapsed in acquisitus interruptus,
supposedly because Ebbers & Co. were worried about the
effect on the stock price of a $13 billion acquisition, which
would have cut WCOM's profits this quarter by about 25%.
Ill even concede that Nextel isn't a very good wireless
company. Its network is relatively small, and while it is
"national" in the sense that it has local service on both
coasts and many points in between -- Nextel has operations
in about 90% of the nation's top 100 markets -- that coverage
is thin and geographically spotty. And it doesn't offer
effective roaming connections to other wireless services to fill
in the empty areas. But with about 3 million subscribers, it
would have been a major stepping stone in building a
wireless business at WCOM.
Dear Bernie: They're all expensive, there aren't many
acquirable wireless companies of any size left, and
number-of-subscribers is the real number to look at. Get
going.
Instead of closing the deals WCOM needs to keep up its
momentum and effectively challenge AT&T (T:NYSE), which
I am also long, Ebbers and his sidekick, COO John
Sidgmore, cozy up to wireless companies, talk a lot, then
fold their tent, later telling analysts and investors that they're
not so sure wireless companies are really that important
after all.
Dear Bernie: They are that important. You've gotta close
these deals, not walk away, then say they didn't mean much.
WCOM's track record in pursuing major wireless companies
That has not been encouraging. In January WCOM also walked
away from a bidding contest for the San Francisco-based
wireless outfit AirTouch (ATI:NYSE) -- perhaps the "best-fit"
wireless candidate then available. Eventually Vodafone
Group (VOD:NYSE ADR) won AirTouch.
If WCOM doesn't snare a sizable domestic wireless
company soon, it's going to be left high and dry, largely left
out of the critical wireless business. Ebbers' timidity and
parsimony will have hurt shareholders badly. It's too late in
the game to build a major wireless unit from scratch; today,
you have to buy wireless customers at wholesale.
Dear Bernie: Paging's nice, but wireless is what matters. Get
off the stick.
MCI WorldCom's lack of a major wireless business unit is
becoming the longest-running soap opera of the telcom
business. Will he? When? Is he trying for the Susan Lucci
Award? Is Sidgmore the hesitant one? Will WCOM
shareholders remain quiescent?
Dear Bernie: We don't need that kind of speculation.
Jim Seymour is president of Seymour Group, an
information-strategies consulting firm working with corporate
clients in the U.S., Europe and Asia, and a longtime
columnist for PC Magazine. Under no circumstances does
the information in this column represent a recommendation
to buy or sell stocks. At time of publication, Seymour was
long AT&T and MCI WorldCom, although positions can
change at any time. Seymour does not write about
companies that are consulting clients of Seymour Group, or
have been in recent years. While Seymour cannot provide
investment advice or recommendations, he invites your
feedback at jseymour@thestreet.com.
Art |
