NEW YORK-And now let’s have a round of applause for top executives of Arch Communications Group Inc., Paging Network Inc. and SkyTel Corp.
These successful emigres from wireless telephony have spearheaded a positive reversal of fortune not only for their paging companies but also for the domestic paging industry in the last 18 months.
That was the message that Jeanine M. Oburchay, associate director of Bear, Stearns & Co. Inc., brought to the New York Society of Security Analysts at its recent “Telecommunications Industry Conference.”
“Something had to be done to keep the companies viable, (and) there had to be a sea change in the industry because things had been run so poorly with respect to the balance sheet,” she said.
SkyTel, which recently changed its name from Mobile Telecommunication Technologies Corp., brought in two Southwestern Bell Mobile Systems Inc. alumni-John Stupka as chief executive officer and Robert Kaiser as chief financial officer. Jack Frazee, formerly CEO of Centel, a cellular carrier that merged with Sprint Corp. in 1993, came on board
PageNet as its chief executive. Arch brought in Lyndon Daniels from Pacific Telesis’ broadband personal communications services as chief operating officer and Roy Pottles of Jones Intercable as chief financial officer.
These executives summarily discarded the self-defeating conventional wisdom that market share and subscriber growth at any cost should be the first priorities, Oburchay said.
“When Stupka said he would change the paging paradigm, everyone laughed because it had become so entrenched,” she said.
With the goal of reducing the debt burden that had caused an exit stampede by the investment community, they started raising prices and shifting away from leased pagers.
The result of the two-pronged strategy has been that service revenue continues to increase even though the rate of annual subscriber growth has declined to a range of 15 percent to 20 percent. The major carriers are generating free cash flow from their operations and have dramatically reduced their need to gain working capital through the sale of debt or equity. SkyTel could turn a profit as early as the last quarter of this year, Oburchay said.
PageNet plans to get out of pager distribution altogether over the longer term. SkyTel “shaved $10 million off of its capital expenditures in 1997 and may repeat those savings this year” by bringing in third-party financing and leasing deals with Motorola Inc.
“PageNet used to say that Motorola was a 2,000-pound gorilla, but then Glenayre bought Wireless Access and other companies came in to compete,” she said.
SkyTel pays $6.50 per month for each pager, which it then leases to its Fortune 500 corporate customers for $10. “The gain isn’t capitalized and flows straight through to the bottom line,” Oburchay said.
SkyTel’s Stupka also is on the board of directors of CellStar Corp., a Carrollton, Texas, distributor of wireless devices, primarily handsets. CellStar already provides some pager distribution services for SkyTel and sees a growing market in the paging sector over the longer term, Richard M. Gozia, CellStar’s president and chief operating officer, told RCR.
The likely next step in the move to lower the debt leverage of paging carriers is further industry consolidation, “mostly stock-for-stock mergers of equals,” Oburchay said.
“The desirable qualities (in these mergers) will be distribution, brand names and narrowband PCS networks, not just subscribers and spectrum,” she said.
MobileMedia, which seems likely to emerge from bankruptcy reorganization with the lowest leverage in the industry, is one company in particular to watch for as a buyer or as a takeover target. Another is Arch. As the most highly leveraged company among the top three, it “likely will require a strategic partner to help it de-lever,” Oburchay said.