Amid speculation that it could be a takeover target by MCI WorldCom Inc., SkyTel Communications Inc. announced a new pricing plan and a major strategic alliance last week, both designed to better position it for the wireless messaging battle ahead.
Most significantly, the company announced it signed a Memorandum of Understanding to form a strategic alliance with American Mobile Satellite Corp. to resell services on each other’s respective networks, beginning this summer.
AMSC operates both a satellite network and the Ardis terrestrial packet data network, while SkyTel runs a ReFLEX two-way paging network.
SkyTel officials said the proposed alliance will provide both companies’ customers with a greater range of messaging services.
The deal looks much like the one Paging Network Inc. and packet data carrier BellSouth Wireless Data L.P. formed last month, but with significant differences in execution strategies. While both companies will target the corporate information technology market, Yankee Group analyst Darryl Sterling said he sees the PageNet/BellSouth alliance as more consumer-oriented, while the SkyTel/AMSC deal seems better suited for corporate telemetry purposes.
“BellSouth is trying to appeal to the mass market and tooting their horn a lot to do so,” he said. “AMSC doesn’t do that, but it doesn’t mean they don’t have as good a product.”
Sterling said that together, SkyTel and AMSC could become a telemetry powerhouse, with coverage that can enter virtually any home or commercial building via a wireless utility meter.
“SkyTel and AMSC have the same thing in common,” he continued, noting that both have wireless meter reading deals with electric utility Enron Corp. “For the customer base they want, they don’t have to market that aggressively … They’ve now got all the network assets covered. They’ve got ReFLEX assets, packet data assets and satellite assets.”
Enter the MCI WorldCom takeover rumors. A story printed in Business Week last week said money managers speculate SkyTel’s recent foray into profitability may prove irresistible to telecom giants eyeing the wireless Internet access space. SkyTel’s stock price jumped $4 immediately after news of the story broke, from $15.12 to about $19, ending a two-month slide from $28.37 on Feb. 3. At press time it was $17.60.
However, financial analysts interviewed by RCR see little to get excited about, as telecom carriers in the last two years have opted to dump their paging operations rather than acquire more. AT&T Wireless Services Inc. sold its paging unit to Metrocall Inc. while Bell Atlantic Mobile divested its paging network to what is now Aquis Communications Inc.
“I don’t think it’s a good match,” said Chris Larsen, wireless analyst at Prudential Securities Inc., of a possible SkyTel-MCI WorldCom combination. “You can resell their service without the capital investment and still make a good profit.”
Not that SkyTel is not considered a good company. Larsen and Prudential have set a “Buy” rating for its stock, as have several other financial analysts.
“It fundamentally stands alone on its own,” Larsen said. “It’s a good name.”
But Sterling said telecom giants could be interested in SkyTel’s ability to enter the household via the wireless utility meter. He said there are three ways a carrier can penetrate a home-the phone line, the cable box and the utility meter. MCI has the phone line covered with long-distance wireline service. Buying SkyTel would give it access to the utility input.
“Telemetry is going to be a window into every household and every company. With that, you can control many functions,” he said.
Also, MCI WorldCom and SkyTel both are located in Jackson, Miss., and merging would allow for a consolidation of assets and elimination of certain overhead.
SkyTel would not comment on the merger rumors.
The company did unveil a new alternative pricing plan, however. Beginning immediately, customers can get 500 messages of 100 characters each and a toll-free personal access number for $25 a month. That works out to 5 cents a message, a figure the company is stressing in its marketing campaign.
Scott Hamilton, SkyTel vice president of investor relations, said the company developed the plan “to try to better express to customers the benefits of messaging and reinforce it as a great value. A lot of digital cellular companies are talking about a dime a minute. (With SkyTel) you can discreetly get a lot of information at a nickel a minute at your convenience, whereas if you rely on phones, you can get interrupted for a dime a minute.”
He said the existing pricing plan will remain an option as well.
“I think it’s a smart plan,” said Prudential’s Larsen. “They were getting beat up by the BellSouth guys. Now they’re repackaging it so it looks the same.”
