Of the timid Baby Bells,
has delved most aggressively into the looming deregulation in the phone industry. Thus far, that hawkish stance has drawn little investor attention, but some money managers and analysts now believe Ameritech will emerge as the big winner in the Baby Bell deregulation derby.
The Chicago-based company has positioned itself well for competition. Earnings continue to gain at a rapid clip, and investments into ancillary businesses such as cellular phones, PCS systems and cable television have bolstered the firm's prospects. Adding to the nascent good feelings surrounding Ameritech is a successful international investment effort. More than one-third of new earnings now come from outside the U.S., Ameritech officials say.
Right now, however, Ameritech continues to get lumped in with its Baby Bell cousins. Share prices for
have all slipped modestly since January 1996. During the same time, Ameritech's stock price has barely budged. The entire group suffered last year, running in place as the
Part of the Baby Bells' weakness stems from uncertainty surrounding the massive telecommunications deregulation act passed by Congress last year. The new act will open up long-distance and local phone service to greater competition. Eventually, the Baby Bells and long-distance carriers will grapple for market share across the telecommunications spectrum.
The prospect of more competition has rattled much of the established telecommunications industry. But Ameritech has taken a different tack, surprising its peers with an early January FCC filing that requests the authority to offer long-distance service in Michigan. That filing sparked stern counter-filings from long-distance giants
. Ameritech has recently amended that filing, filling in so-called "paperwork gaps." (No small task, given the 4,000-page length of the original filing.)
Ameritech, which has 12 million local phone customers in Illinois, Indiana, Missouri, Ohio and Wisconsin and 2.5 million cellular subscribers, must show that it is allowing for sufficient competition in its home local markets before regulators will permit the company to enter the long-distance fray. But by striking first with its long-distance filing request, Ameritech has at least one fund manager thinking the company has positioned itself to emerge ahead of the pack as the regulatory walls start to crumble.
The stock is already "very cheap relative to the market," said John Carey, a manager of two funds run by
Pioneering Management Corp.
Carey already has heavy positions in Ameritech in his
funds, and with Ameritech trading at about 14 times estimated 1997 earnings, compared to the
multiple of about 18 times estimated 1997 earnings, he thinks the stock is still a good purchase.
Moreover, Carey likes Ameritech's relatively robust dividend payout. On Dec. 18 the company increased its annual dividend payout to $2.26 a share from $2.12 a share. That gives the firm an annual dividend yield of 3.7%, almost twice the dividend yield offered by the S&P 500. That sizable dividend, investors say, makes its worthwhile to wait as Ameritech's competitive position unfolds.
By Kevin Petrie