Hey, it's a pretty good deal. Both as an observer of the telecom industry and as a shareholder -- I'm considerably long the stock --
, announced Friday, looks good on both sides. The price, $1.3 billion in WCOM shares, a decent but modest premium over SKYT's preannouncement market cap of about $1.1 billion, sounds about right. The two companies should be a fit. Life goes on.
If I sound less than jumping-up-and-down-enthusiastic about the deal, it's because ... well, I am. A lot less. We've been waiting for the other shoe to drop -- but this isn't the shoe we expected. Nor, WCOM holders had better pray, CEO Bernie Ebbers' idea of the deal he needs to do.
With about 1.6 million subscribers, SkyTel is the leader in nationwide paging, an increasingly profitable business. For the first calendar quarter of this year, SKYT's revenues were up about 15%, and profitability improved from a $13 million loss to a $6 million profit, before accounting charges, quarter-over-quarter. The real key to making money in the paging market today is bumping your customers up to higher-priced, value-added services, and SKYT has been doing that -- for example, by introducing new options, and pushing hard for customers to jump to the
, a two-way device about the size of a fat wallet, which can send messages from a tiny but usable alphanumeric keyboard as well as receiving them. SKYT has also been pushing costs down aggressively.
Nice job, SkyTel management; nice payback in the buyout. The Street agreed, more or less: Both stocks closed up on an odd, up-but-drugged preholiday Friday afternoon, though WCOM slipped a little in after-hours trading. But nice though the SKYT acquisition is, it isn't what WorldCom needs most. For three years now Ebbers has been dissembling about WorldCom's need for a major wireless partner or acquisition, while deal after deal slipped away. Most recently, it was the much-negotiated acquisition of
, which once again collapsed in acquisitus interruptus, supposedly because Ebbers & Co. were worried about the effect on the stock price of a $13 billion acquisition, which would have cut WCOM's profits this quarter by about 25%.
I'll even concede that Nextel isn't a very good wireless company. Its network is relatively small, and while it is "national" in the sense that it has local service on both coasts and many points in between -- Nextel has operations in about 90% of the nation's top 100 markets -- that coverage is thin and geographically spotty. And it doesn't offer effective roaming connections to other wireless services to fill in the empty areas. But with about 3 million subscribers, it would have been a major stepping stone in building a wireless business at WCOM.
Dear Bernie: They're
expensive, there aren't many acquirable wireless companies of any size left, and number-of-subscribers is the real number to look at. Get going.
Instead of closing the deals WCOM needs to keep up its momentum and effectively challenge
, which I am also long, Ebbers and his sidekick, COO John Sidgmore, cozy up to wireless companies, talk a lot, then fold their tent, later telling analysts and investors that they're not so sure wireless companies are really that important after all.
Dear Bernie: They
that important. You've gotta close these deals, not walk away, then say they didn't mean much.
WCOM's track record in pursuing major wireless companies has not been encouraging. In January WCOM also walked away from a bidding contest for the San Francisco-based wireless outfit
-- perhaps the "best-fit" wireless candidate then available. Eventually
If WCOM doesn't snare a sizable domestic wireless company soon, it's going to be left high and dry, largely left out of the critical wireless business. Ebbers' timidity and parsimony will have hurt shareholders badly. It's too late in the game to build a major wireless unit from scratch; today, you have to buy wireless customers at wholesale.
Dear Bernie: Paging's nice, but wireless is what matters. Get off the stick.
MCI WorldCom's lack of a major wireless business unit is becoming the longest-running soap opera of the telcom business.
Will he? When? Is he trying for the Susan Lucci Award? Is Sidgmore the hesitant one? Will WCOM shareholders remain quiescent?
Dear Bernie: We don't need that kind of speculation.
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long AT&T and MCI WorldCom, although positions can change at any time. Seymour does not write about companies that are consulting clients of Seymour Group, or have been in recent years. While Seymour cannot provide investment advice or recommendations, he invites your feedback at