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Pcs Licenses May Make Phones Ring


Inside Wall Street

PCS LICENSES MAY MAKE PHONES RING

One glance at the stock chart of Telephone & Data Systems (TDS) suggests that the company is one mighty sorry loser. After all, the shares have plummeted from 45 to 35 in just a couple of weeks. Has the sky fallen in on this provider of rural telephone service in 29 states?

"Quite the contrary," says investment manager Herb Ehlers, who upped his holding when the price started to sag. The company has, in fact, just pulled an enviable coup by winning bids for wireless personal communications services (PCS) licenses in eight cities for $289 million.

To Ehlers, chairman and chief investment officer of Tampa's Liberty Investment Management, which steers some $4.5 billion, the newly won licenses make Telephone & Data, now trading at 38, an even more valuable enterprise in this hot business.

But here's why others bailed out: They worried that acquiring the PCS licenses would require a huge outlay. Investors feared the company would need to raise money by selling more stock. And they didn't see how the company could protect its credit rating and profit margins as it built up PCS operations. The company also provides cellular services through its 81%-owned U.S. Cellular (USM), and paging services through 80%-owned American Paging (APP).

It's true that Telephone & Data has said it is studying certain financing options. But not the type of equity financing that investors had feared, says Ehlers. He is convinced Telephone & Data will form a PCS subsidiary and take it public to produce the funds needed to launch a wireless telecommunications network.

"Telephone & Data, with all its properties and licenses, is one of the most undervalued companies in the industry," says Ehlers. He puts the combined value of its various assets at $100 a share. The stakes in U.S. Cellular and American Paging alone are worth some $40 a share in Telephone & Data stock, figures Ehlers. Telephone & Data, he maintains, "is a growth stock that is a great value play." He estimates that over the next three years company profits will grow at an annual 25% rate.

Telephone & Data plans to align and attach its PCS operations with its existing cellular markets, explains Ehlers. The eight licenses won by the company are for some of the fastest-growing U.S. cities: Columbus, Ohio; Clearwater, Fla.; Houston; Kansas City, Kan.; Orlando; Pittsburgh; St. Petersburg; and Tampa.

Ehlers says he wouldn't be at all surprised if one of the major telecommunications companies ultimately made a move to acquire Telephone & Data--before it gets to be a major and expensive player.


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