NEW YORK-When it comes to American pure-play personal communications services IPOs, the million-dollar question is, “Where did they go?”
Sprint Corp. may hold the answer with its planned initial public offering this fall of $500 million to $1 billion in common stock to finance a spinoff of Sprint Spectrum L.P., doing business as Sprint PCS.
“We are very well perceived by the market. We have a national brand, and we’re (off to a) good early-stage start,” Andrew Sukawaty, chief executive officer of Sprint PCS, told RCR.
The dearth of publicly traded stocks of stand-alone wireless carriers generally and PCS carriers in particular also likely bodes well for the planned stock sale, he said.
“We do not think [the size of Sprint PCS’ proposed IPO] is enough to claim a supply glut is hitting the market, especially given the relatively tiny market [capitalization] of the PCS group vs. other sectors in telecom,” said John M. Bensche, senior wireless analyst for Lehman Brothers Inc., New York.
Bensche’s PCS universe, which totals about $12 billion in stock market capitalization, comprises just five companies, including Omnipoint Corp., Powertel Inc. and Aerial Communications Inc. Nextel Communications Inc., while providing PCS-like service, is an enhanced specialized mobile radio operator. Western Wireless Corp. owns both cellular and PCS properties.
“In fact, we think the road show for [the IPO] could well stimulate interest in all the new entrants, as we believe the main whipping boys on that deal will be the incumbent cellular carriers.”
The good news for new wireless carriers is that they have and will garner most of the subscriber and revenue growth, which is expected to continue, said Christine M. Crowe, an associate with the law firm of Paul, Hastings, Janofsky & Walker L.L.P., Washington, D.C.
During the second quarter of this year, “we believe PCS captured 46 percent of net (customer) additions, or 1.16 million net adds, (and) PCS’ annualized revenues as of 2Q98 are now $3.8 billion, up 309 percent vs. 2Q97,” said Thomas J. Lee, senior wireless analyst for Salomon Smith Barney, New York.
The bad news, Crowe said, is public capital markets looked much more favorably on A- and B-band PCS licensees because they were the first competitors into their service areas.
“By the time you got to the C-block, potential entrants had much more difficulty securing capital because of the advantage held by the A- and B-band (players).
“The largest C-block bidders are in a state of bankruptcy and have returned all or a portion of their spectrum … this will cause potential investors and acquirers to make sure business plans are sound.”
General Wireless Inc., a major C-block bid winner, received a favorable bankruptcy court ruling that reduced dramatically its Federal Communications Commission license costs to $160 million from more than $1 billion, Bensche said.
The largest C-block winner, NextWave, is suing the FCC, “saying its license was overvalued,” Crowe said.
The C-block restructuring and appeals that case is likely to generate probably will take at least a year to sort out, Bensche said.
“At that point, it will be difficult to give this spectrum away given the $50 to $60 per pop buildout costs required to go operational as a mobile competitor. Do not fear the C-block,” Bensche said.
Sprint PCS’ IPO, therefore, might be the last IPO of a PCS pure play for awhile.
