Making the Right Call

VIRGINIA BUSINESS

TAKING STOCK

MAKING THE RIGHT CALL

A visit to my parents' house reminds me of how far the world has come in telecommunications: There, on the kitchen wall, is the phone that once belonged to my great-grandfather. His general store in Hilly, La., was the perfect spot for the community's first phone, a link to neighboring towns and to the modern world of communications.

Family lore paints him as a tinkerer, a technophile of his time. What sort of telephony would he bet on now? This month's report on the industry only touches on the explosion of new gadgets and services.

While it's clear that tomorrow's telephony is rapidly evolving, it's not as clear which companies will win customers' hearts, minds and -- the clincher -- patronage. Consider these three, which have a major presence in Virginia:

If New York-based Bell Atlantic (NYSE, BEL: $57.19) jumps through the right hoops to acquire Irving, Texas-based GTE, it will represent nearly 90 percent of the commonwealth's access lines. CEO Ivan Seidenberg told Global Telecoms Business magazine that the Boston-to-Richmond corridor "is the most communications-intensive piece of real estate on the planet." Seidenberg says the company intends to be a global player, with the corridor "as the centerpiece of that entire enterprise."

Right now Bell Atlantic is the nation's second largest phone company after AT&T. It provides local phone service in more than a dozen northeastern states and Washington, D.C. Bell Atlantic is following the same strategy as many other major telecoms: It has to have a national reach and provide a full range of services.

Seidenburg sees unlimited potential -- he has said that the demand for high-speed data connections "is exploding in every segment of the marketplace, with data traffic doubling every three months, as opposed to every 12 years for voice traffic."

Bell Atlantic's competition comes primarily from companies like Jackson, Miss.-based MCI WorldCom (Nasdaq, WCOM: $89.75), which is building a worldwide fiber-optic network to serve business and high-spending residential clients. The company wants to be able to access at least 70 percent of the business market with its own networks, says F. Drake Johnstone, a technology and telecommunications analyst with Richmond-based Davenport & Co.

Right now, regional Bell operating companies charge long-distance carriers for originating or terminating a call. That's why long-distance companies are building their own networks and reaching customers directly -- ideally through fiber-optic connections, but through wireless or other means where needed. "That's the whole battle," Johnstone says. "AT&T, WorldCom, Qwest and Sprint believe local telephone companies are charging way more than they need to for the service they're providng."

MCI WorldCom is paying almost $7 billion in local-access charges, Johnstone says. "That could go away over the next several years, and those ... charges are a huge source of revenue for the local-access companies," he says. "You have to wonder about their earnings growth going forward."

Among the Baby Bells, Bell Atlantic is the closest to entering the long-distance market. It will get its start in New York, where Johnstone foresees serious competition.

"They've already lost 20 percent of the business market in New York City to AT&T, WorldCom, Qwest and other competitive carriers. They've got far more competition than any other local carrier, and that presents some challenges to them," he says.

Bell Atlantic and MCI WorldCom are nationally known companies whose stocks are widely covered. On a smaller scale, there's Waynesboro-based CFW Communications (Nasdaq, CFWC: $24.63). What's unique about this small company is its diversity. CFW operates mainly in Virginia and surrounding states. It wants to provide a full menu: local, PCS, long distance, wireless and wireline cable, cellular, paging, directory assistance, Internet access and more.

"They're quite an interesting company because they are involved in a full range of telecommunications services -- more than you'd expect," Johnstone says. Also, CFW's market is more sparsely populated, so there's less competition than there is in metro areas like Richmond, New York or Washington, D.C. "They can achieve a higher market penetration for those services and higher revenue for services," Johnstone says.

Earnings growth has been flat lately, but that's because the company is investing cash in new businesses: It recently purchased a number of small Internet service providers and is building a PCS network. While it may not be an investment for the short-term, Johnstone says the company bears watching. "I believe CFW in the year 2000 ... could be generating earnings growth of 25 to 30 percent before PCS losses."

Leigh Anne Larance
Senior Editor