Tritel Public Offering will Complete AT&T Wireless Trilogy
By
Richard McCaffery (TMF Gibson)
November 26, 1999
For long distance, wireless and broadband services provider AT&T (NYSE: T), it's two down and one to go.
In the last month, two of its wireless affiliates, Triton PCS (Nasdaq: TPCS) and TeleCorp PCS (Nasdaq: TLCP) have gone public and prospered in early trading. In mid December, Tritel (Nasdaq: TTEL) is expected to follow suit and raise a maximum of $172.5 million in its offering.
It's unknown how many shares the company plans to offer or the proposed offering price, but based upon the performance of Triton and TeleCorp it's reasonable to say Tritel will price in the $18 to $20 range.
Tritel is a wireless phone company licensed to provide PCS services to 14 million people in the South central U.S. Its largest markets include Lexington, Kentucky, Birmingham, Alabama, and Knoxville, Tennessee.
In January, the company linked its fortunes to AT&T through the affiliate agreement, under which it will provide its PCS service as a member of the AT&T Wireless network. Through the agreement, Tritel is the preferred roaming partner for AT&T customers in almost all of its service areas.
Since AT&T has over 10 million wireless customers, the partnership provides a healthy customer base for Tritel to tap into. AT&T has a 21.9% stake in the company. Tritel has also teamed with TeleCorp. and Triton to operate under a common brand name, SunCom. Taken as a whole, the companies should be able to offer a powerful service to its customers.
One of the issues investors want to consider, however, is value in the mobile communications market. How many ways can it be sliced? Competition on a national scale is furious with firms like AT&T, Bell Atlantic (NYSE: BEL), Vodafone AirTouch (NYSE: VOD), Sprint (NYSE: FON), SBC Communications (NYSE: SBC), Nextel (Nasdaq: NXTL), and VoiceStream Wireless (Nasdaq: VSTR) racing to expand their national reach through the acquisition of local wireless players and rapid network buildout. As these firms grow in size and scope, will the value of regional players suffer?
Investors that want a stake in the mobile communications market, therefore, need to decide if they want to invest directly in one of the national companies in an attempt to own shares of a market leader, or invest in a regional player like Tritel.
Tritel's fortunes are closely linked to the success of AT&T, of course, and at first glimpse it's hard to understand why investors would want to tie their horse to an affiliate rather than the big enchilada -- AT&T Wireless.
AT&T is expected to issue a tracking stock or spin off its wireless unit to shareholders in an IPO, so investors will soon be able to track the economic performance of this fast-growing division directly. (For more on this plan, click here).
Other than its AT&T relationship, Tritel looks like a lot of other development stage companies. It has little operating history, isn't profitable (and doesn't expect to be so in any meaningful way until the end of 2001 at the earliest), hasn't rolled out service in many of its markets, and faces serious costs to build out its PCS network. Through September 30, the company had made cash expenditures of $165.2 million. The company is highly leveraged with $552 million in debt.
At the same time, the need for PCS services is growing rapidly and Tritel's roaming partnership with AT&T works both ways, meaning it can offer its customers national service through the AT&T network. The company's focus on a section of the market may very well appeal to investors who know the region, are familiar with the company's management, or simply like very targeted investments.
Either way, investors considering the mobile communications market should do the research and be able to clearly differentiate the pros and cons between national and local wireless players.
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