After MCI WorldCom Inc. made news with its plans to acquire paging carrier SkyTel Communications Inc., the first question on everyone’s mind was, “Why?”
In a recently released update, Strategy Analytics said it believes “the acquisition … represents an attempt by MCI WorldCom to appease Wall Street with the addition of a credible but small wireless player. The SkyTel acquisition does little for MCI WorldCom and represents a low-risk foothold in the emerging wireless data market.”
Many have questioned why MCI wants to get into the paging business, when other telecoms have exited it in recent years. But according to Darryl Sterling, wireless and mobile communications analyst at the Yankee Group, paging is not the issue here.
“There’s a lot of things SkyTel brings that have nothing to do with paging,” he said. “The paging piece is basically gravy.”
Most analysts feel SkyTel’s network does little to fill MCI WorldCom’s wireless gaps. But in SkyTel, MCI WorldCom purchased a strong wireless management team made up of a number of wireless industry veterans. SkyTel chief executive John Stupka hails from SBC Communications Inc., where he led the carrier’s wireless business.
“SkyTel is a leader in developing and implementing innovative wireless services,” said MCI WorldCom spokeswoman Barbara Gibson. “One of the real strengths SkyTel brings is its management team, which has experience with broader wireless aspects.”
Yankee Group’s Sterling said SkyTel personnel will end up running MCI WorldCom’s wireless interests. The company recently made deals acquiring fixed wireless companies CAI Wireless and Prime One and has stated its intention to pursue further fixed wireless and wireless data applications.
“I’ll bet you dollars to donuts the SkyTel group ends up managing the CAI wireless (multichannel multipoint distribution system) network, and any other wireless interest MCI acquires,” Sterling said. “SkyTel has proven its management capabilities in terms of running a wireless network.”
Critics of the deal say it does nothing to help the second-largest long-distance carrier in the country compete with top dog AT&T Corp., but with a wireless strategy based more on data than voice, it may not have to.
“They’re not trying to compete with AT&T. They’re not trying to compete with anybody,” Sterling said. “They’re creating a new wireless business, which is entirely messaging and data centered.”
MCI has remained decidedly mum on the particulars of its wireless data and fixed wireless strategy, and said it won’t be getting into specifics for a while. However, company spokeswoman Gibson conceded data will play a central role.
“The growth areas for the future are data, Internet and international,” she said. “Voice is a small part of the overall traffic.”
With data as the focus, and SkyTel’s management team leading the way, MCI WorldCom could be well-positioned to become a serious player. Its long-distance business gives it an initial point of entry to the home or office. Its Internet backbone adds another. CAI’s MMDS fixed wireless network can be used for wireless cable transmission, a third point of entry.
The acquisition of SkyTel adds a fourth. SkyTel is at the forefront of the wireless utility meter market. With utility deregulation, many electric companies plan to switch to wireless meter reading, which would turn an electric meter on a home or office into a wireless paging node. SkyTel already has agreements with electric giant Enron Corp. for such a system, as does American Mobile Satellite Corp., with which SkyTel has a strategic alliance that could also benefit MCI WorldCom.
While SkyTel hasn’t the largest overall paging footprint in the nation, it is particularly well-focused on business centers, and 80 percent of MCI WorldCom’s customers are businesses.
However, the proposed acquisition isn’t popular on Wall Street. SkyTel’s per-share price fell immediately following news of the acquisition. Most of the selloff came from speculators who bought stock on buyout rumors. These shareholders, and some others, expected a purchase price at 30 percent above present price levels. The actual offer, however, represents only a 6-percent premium.
Some think the lower price may make the deal vulnerable to a competing bid. Names like eBay, America Online, Telecom Italia Spa and even Microsoft Corp. have been tossed around as potential bidders for SkyTel.
Additionally, a securities class-action lawsuit has been filed against MCI WorldCom on behalf of anyone who has sold SkyTel common stock and call options, or who have purchased put options.
The complaint revolves around an MCI WorldCom employee’s registration of the Internet domain name skytelworldcom.com three days prior to the acquisition announcement. When news of the registration broke, SkyTel stock soared over takeover rumors. When MCI WorldCom denied the action reflected any “official company intention” to buy SkyTel, the stock price fell.
The lawsuit alleges the motive behind MCI WorldCom’s denial was to lower the cost of acquiring SkyTel by depressing SkyTel’s stock price.
In addition, the Wall Street Journal reported the Securities and Exchange Commission was investigating whether MCI WorldCom misled investors regarding the SkyTel purchase.
