NEW YORK-Standard & Poor’s Corp. revised its outlook on Paging Network Inc., the nation’s
largest paging carrier, to negative from stable, due partly to the company’s lower-than-expected fourth quarter 1998
results.
“The outlook revision … also reflects … Standard & Poor’s concerns regarding near term revenue
growth and the level of expenses associated with … the four planned Centers of Excellence, (which) represent the
consolidation of [PageNet’s] customer care centers and administrative functions,” said Rosemarie Kalinowski, a
wireless industry analyst for the rating agency.
This is part of a restructuring of the paging provider’s domestic
operations, which began a year ago and is expected to be completed by mid-1999.
S&P affirmed its speculative
grade ratings of B and BB on various kinds of outstanding PageNet debt, which totaled about $1.8 billion as of Dec. 31.
However, the agency cautioned that further weakness in cash-flow measures could result in a ratings downgrade within
a year.
“PageNet’s ratings reflect its current high debt leverage and weak cash flow (relative) to interest
expense coverage, offset by its dominant position in the highly competitive paging industry, its low-cost extensive
network and its strong marketing and distribution channels,” Kalinowski said.
She added that PageNet’s
“weakened financial profile” is partly due to its $600 million investment, including spectrum fees, for the
“unsuccessful deployment of VoiceNow.” The VoiceNow network, which is about 75 percent complete, is
planned for use with PageNet’s advanced messaging services. Acknowledgement paging is expected to be
commercially available this quarter and two-way messaging during the third quarter.
Short-term financial results are
likely to be impacted negatively by the costs associated with both the restructuring of domestic operations and the start-
up costs for advanced messaging, Standard & Poor’s said.
“Successful completion of the sales force
reorganization efforts and timely rollout of the advanced messaging network will be essential to improving revenue
growth and cash flow levels,” Kalinowski said.
Meanwhile, Reuters reported Prudential Securities Inc. has
raised its rating on SkyTel Communications Inc. to a strong buy, from hold, and set a $25 target price. SkyTel reported
a fourth quarter positive net income of $1.8 million, the company’s first profitable quarter since 1993.
