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This year's economic slowdown sent most wireless operators scrambling to cut costs. As they increasingly outsourced services, such as directory assistance, Metro One, the U.S. leader in wireless 411 services, bloomed. On Oct. 25, the Beaverton (Ore.)-based company recorded $61 million in third-quarter revenues, up 42% from the period in 2000 and 3% more than the previous quarter. For all of 2001, Metro One's management expects revenues to increase as much as 59% over last year, to $235 million. In 2003, the company expects sales to rise another 39% to 45% (click here for a Q&A with Metro One CEO Tim Timmins).
Metro One (MTON
), which services all Sprint PCS (PCS
) and most AT&T Wireless (AWE
) mobile users, is profitable. The company posted 30 cents in earnings per diluted share in the third fiscal quarter -- double the per-share income of the same period of 2000.
Analysts have seized on the company, public since 1996. Between Nov. 9 and Nov. 14, three investment banks -- Punk, Ziegel & Co., William Blair & Co., and Robert W. Baird & Co. -- initiated coverage. And RBC Capital Markets on Nov. 12 upgraded the stock to "buy," from "neutral." Not surprisingly, investors have taken notice, sending the stock, which traded near $23 a share in March, up 70%, to around $39.
"VERY COOL." And why not? The future of this company, headquartered in a one-story brick building with a garden favored by ducks, looks bright. While some regard the stock's run-up as perhaps a bit overdone, Metro One is a solid company and the wireless 411 service market is booming. Metro One services the fastest-growing U.S. operators: all Sprint PCS mobile users, the majority of users of AT&T Wireless, Nextel Communications, and Alltel, and about 10% of Cingular Wireless clients.
"Customers find it a very cool and different service," says Ritch Blasi, director of media relations for AT&T Wireless. "We're finding that when people call it, they call back." Metro One has submitted a proposal to Cingular to service more of the company's mobile users. Analysts also believe that other carriers, like VoiceStream Wireless, could embrace its service.
Today, the average wireless customer makes only one directory assistance call a month. That compares with 2½ calls a month for a traditional landline phone customer, says Bill Benton, analyst with William Blair. "On the wireless side, you are more likely to use 411 because you don't have a phone book next to you," says Benton. Thus, "there's lots of room for growth," he says. Besides, the total number of subscribers keeps growing at 8% to 10% a year -- by yearend the U.S. will be home to 130 million mobile users, according to researcher the Yankee Group.
FANCY FEATURES. Meanwhile, Metro One, which already handles 40 million calls a month, offers the sort of fancy directory assistance, such as operator-assisted driving directions, users want. The company's MetroDex feature should take off big time when it's introduced by AT&T Wireless. "It's one of the most significant product releases," says Chris Thomson, analyst with J. Michael-Patrick, LLC.
Here's how it works: A user can provide a personal contacts list and a calendar to Metro One and retrieve the information when away from the office by calling the operator. Think about it, says Metro One President and CEO Tim Timmins: "Most of your calls are to the people you know, not to people you don't know."
The company also could benefit from the wireless operators' rollout of so-called location-based services, which is based on the idea that a carrier knows a mobile user's location at all times. Between 30% and 50% of all 411 callers today require more help than just a number listing, says Timmins. Customers want the operator to find them the nearest florist, make restaurant reservations, or help find a name that goes "something something -smith."
The location-based technology, to be used first for exactly pinpointing 911 callers, would allow Metro One to begin offering new services as well, says Timmins. For instance, a user could call with a question such as "Where am I?" and the operator would locate the client and give him the particulars of how to reach his destination. Meanwhile, the service could beam ads right onto cell phones for, say, Nike as clients walk by Nike stores.
HEADACHE REMEDY. Operators find that offering such enhanced directory-assistance services reduces customer turnover boosting the number of minutes they use up, which drives up carrier revenue. Yet most wireless operators have no experience in providing such services. Plus, "call centers are a huge headache to run," says Benton. "They are expensive, and there's a lot of turnover and union activity."
Outsourcing to Metro One, with 30 call centers around the country, removes these headaches and lowers service costs. Its 6,700 employees -- many of them students -- are nonunionized, keeping labor costs in check.
In the next year, analysts also expect Metro One to make further inroads into the landline 411 assistance markets. The U.S. directory-assistance market should nearly triple the next five years, from $1.6 billion in revenues in 2001 to $4.63 billion in 2006, says Kathleen Pierz, a vice-president at the Kelsey Group, a communications and e-commerce consultancy. It won't be until around 2005 that wireless 411 revenues will overtake wireline directory assistance sales, she predicts.
"You can rest assured that if there is important business out there available, we are out there to get it," says Timmins. Metro One is taking small steps toward providing 411 support for landline users. The company already services Time Warner Telecom (TWTC
), operating a national Internet and phone network. "I expect them to be as successful on the wireline side as they have been on the wireless side," says Seth Potter, analyst with Punk, Ziegel & Co.
CLOUDS ON THE HORIZON? Not all is rosy in wireless directory-assistance land, however. Metro One has grown by leaps and bounds in the past several years, thanks mostly to its conquering new markets. But now, with most large carriers willing to outsource the service already signed up, the company could experience slower growth, says Rich Valera, analyst with investment bank Needhan & Co. Some existing clients could choose to contract with several directory-assistance companies to drive down prices, says Benton. Finally, tempted by the business's profitability, other operators could follow Verizon Wireless's example and move directory assistance in-house, says Benton.
For Metro One, such moves could cause great harm. Sprint PCS, AT&T Wireless, and Nextel together account for more than 80% of the company's business. But you can see why they might consider going in-house. Directory assistance is a lucrative business. An average directory-assistance call, lasting around 30 seconds, is priced at $1. Pure profit can reach 65 cents, which operators and the directory-assistance provider split. Meanwhile, Metro One charges carriers an average of around 50 cents a call, says Timmins. Metro One's gross margins quiver around 40%.
Also troublesome are the expected megamergers among wireless carriers that could start as early as next year. After combining, some operators could take directory assistance in-house. On the other hand, "if you have happy customers, you get introduced to other customers [through mergers]," says Charlie Anderson, vice-president of marketing for competitor INFONXX. Another potential threat could come in a few years, analysts say, when operators may attempt to use automatic operators.
SOLID STOCK. Metro One's earnings should grow at least 25% annually over the next three years, estimates Thomson. Analysts polled by First Call expect Metro One to report $1.15 in earnings per share in 2001, $1.21 in 2002, and $1.57 in 2003. "Everything with the company is going really well," says Thomson.
For a long-term investor, this is a company with its ducks all in a row. True, there is the view that the shares are a bit pricey right now, with most analysts believing that investors should be looking to buy shares when they trade in the low to mid-$30s. One exception: if Metro One gets another big contract. Then the stock could soar. But don't count on that. At a minimum, consider this a company in the wireless arena that's not at risk of going belly up.
Kharif covers telecommunications from Portland, Ore. Edited by Beth Belton
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Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
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