Wireless Stocks Soar 400%

April fools! If wishful thinking didn't pull you in, that headline probably didn't fool you at all, given the industry's recent Wall Street performance. As wireless stock prices droop to mere shadows of their former selves, carriers can keep hope alive for the long term, but also might want to trench-in for a volatile market in the near future.

It may be that carriers are victims of their own success. The great carrier consolidation of 2000 might have strengthened the dominant players, but it hasn't helped their stock prices.

“Investors are concerned with how you make money with six well-financed national players duking it out for the customer,” said Kurt Fawkes, Sprint PCS vice president of investor relations (www.sprintpcs.com).

A second concern, according to Fawkes, is the amount of equity coming into the market in 2001. The oft-delayed Verizon Wireless IPO should (www.verizonwireless.com) come in 2001, as well as a second offering from Sprint PCS and the re-offering of AT&T Wireless (www.attws.com). Speculation is that Cingular also will go to market (www.cingular.com) this year. Orange's IPO already has stumbled its way onto the scene (www.uk.orange.net).

Those IPOs will cut off the legs of any upward movement of wireless stocks, according to Kent Reynolds, A.G. Edwards research analyst (www.agedwards.com). With a flood of IPOs, supply will exceed demand and drive prices back down.

It's unclear how much of the wireless slowdown is due to the state of the U.S. economy, but the possibility of a recession won't help matters.

“The last time there was a meaningful recession in the United States, there probably were about 10 million wireless users,” Fawkes said. “Today there are 110 million users, so there's not been any experience with an economic slowdown at this level. People are really throwing a coin in the air as to how it might impact the industry.”

Fawkes added that because wireless still is driven by customer growth, any deterioration in consumer confidence should be a red flag to the industry.

The huge amount of money projected to be spent on 3G systems and new spectrum licenses only has investors more skittish. The real fun is still a while out and is going to be expensive to reach, Reynolds said. In the years leading to 3G, the key for carriers might be just to survive.

“More than deciding who the real big winners are going to be, we're going to find out who the losers are going to be,” Reynolds said.

If stock prices fall relative to the price carriers pay for spectrum, will the expenses of meeting the E-911 and wireless number portability (WNP) mandates deal another harsh blow? Fawkes doesn't expect E-911 to be a large expense for carriers and added that the landline experience with number portability should minimize WNP innovation costs. He added that WNP could hurt carriers' stocks by making it easier for customers to churn.

Keeping up on what will happen to carriers' stocks isn't going to be easy in the near future, especially when the nation's two largest carriers aren't public. Reynolds said that there isn't one carrier that stands out as a bellwether; the carriers' stock prices tend to move together. Better batten down the hatches.