The numbers game
Numbers can be fun, or so my accountant says. Of course, if I really listened to my accountant, I wouldn’t be awake for long, because he’s only slightly more interesting than my term life salesman. Still, there is that fascination that comes with talking about big numbers. And if you stick a dollar sign in front of them, then they’re suddenly really neat.
So, the other day when I tripped across Nextel Communications’ earnings report for 1995 and 1996 as published in “The Journal” (cool guys don’t say “The Wall Street Journal”), I became obsessed with the numbers. Nextel reports that it lost $556 million and some change in 1996. It also lost about $331 million and carfare in 1995. That’s almost $900 million in two years! The report reminded me the late Sen. Everett Dirkson’s (R-IL) comment about the U.S. budget: “A billion here and a billion there, and soon we’re talking about some real money.”
But how much are we talking about? I mean, it’s hard to fathom that much dough just disappearing into the economic abyss. When the numbers get that high, I need a point of reference. I’ve got to find some comparisons to get a handle on that much cash being flushed. So, let’s just see what losing that much “moola” really means.
How much was that? If Nextel had used the money it lost in 1996 to buy, say, Death Valley, CA, it could have snatched up that neat little parcel for about $250 an acre. All 3,300 square miles of pristine desert could have been part of the company’s portfolio. They could have turned the whole thing into a theme park and cleaned up.
At about five bucks a whack, Nextel could have bought those stupid-looking crown air fresheners for every car in America. Or, speaking of transportation, they could have hired a taxicab to take them to Jupiter and back at about a buck a mile, and they would have had money left over, in case they had to pay a luggage charge.
The average cost of a ticket to a St. Louis Cardinals baseball game is about $12, and the stadium holds about 50,000 people. So, with its 1996 losses, Nextel could have bought out the stadium for every home game over the next 10 years and still have had $100 million to spend on parking, hot dogs and beer. (Well, the beer might have pushed it farther into the red.)
If Nextel had agreed to pay a buck for every cubic foot of water that flowed over Niagara Falls, its 1995 and 1996 losses would have kept the tap on for over an hour. If it got a great deal on tone-only pagers at about $10 a pop, over the last two years it could have installed one on every cow in America. For $20, it would have to settle for every pig. For fifty-bucks-a-beeper, they’d only get sheep (who, as we know, prefer alphanumeric).
In an effort to get great P.R., how about if Nextel had given a $100 gift certificate to each new set of parents who gave birth in the United States last year? No way, you say? Too much? Not really, since that would have set the company back only $400 million, which is still $150 million less than it lost.
Okay, we’re starting to get the picture here: Nextel lost a lot of money. So, how can the company turn itself around? I propose door-to-door sales, using the Girl Scouts. They’re cute, tenacious, well-distributed across the country, and they could probably use an additional product line. There are about 3.2 million of those cookie sellers ringing doorbells across the United States. If Nextel paid each one about 25 bucks a month, it would have the sales force it needs to push its products.
“Wait a minute,” you say, “Who’s going to make all the stuff Nextel is going to sell?” Well, if you compare the company’s losses for 1996 to the gross domestic product of some foreign countries, you can easily see that Nextel could afford the entire workforce of many small emerging nations. If the Girl Scouts agree to a commission plan instead of straight salary, Nextel could hire the entire populations of Granada, Kiribati, the Marshall Islands, Slovenia and Slovakia for less than $400 million (and probably pick up Suriname in the bargain).
Looking at revenues To be fair, Nextel did bring in revenues of more than $330 million in 1996. That is, for every dollar they made, they spent about $3. Try this at home, and without credit you’ll end up on welfare in about a month_like Nextel, which announced that Motorola is lending it another $400 million or so in financed equipment. Now, you try to get Motorola to finance your purchases with numbers similar to Nextel’s. Can you say “Buzz off, deadbeat”?
Speaking of revenues, current figures have Nextel serving about half of the SMR customers in America, or about one million subscribers. Nextel also reports revenue per unit of about $30 per month, while most SMR operators are making closer to about $20 per month per subscriber. Using Nextel’s revenue numbers, it is clear that Nextel lost more money in 1996 than the gross revenues for the entire SMR industry!
Those same figures have the SMR industry growing at a rate of about 13% per year. Assuming that Nextel captures half of the new SMR customers, and its cost of doing business remains constant ($900 million a year), Nextel will begin to break even in about 20 years. Of course we aren’t taking into account the fact that the 7% increase in revenues is offset by Nextel’s debt obligations, the interest on which might wipe out these gains.
Critics of my little analysis might point to Nextel’s increase in total revenues between 1995 and 1996, which showed Nextel gaining $160 million in fresh cash flow. I might counter with a look at Nextel’s earnings per share, (2.31) in 1995 and (2.50) in 1996. The Titanic went down slower.
So what? Right now, with about 25 bucks, you could buy one share of stock in each of the major paging companies and one share of Nextel, too. That’s what investors call a “diversified portfolio.”
Mobilmedia took Chapter 11, Pocket Communications went feet-up, and many of the wireless carriers use more parentheses than periods on their earnings reports. Still, the FCC and Congress have (and promote) the impression that holding a radio license is tantamount to holding a ticket to riches.
Technology isn’t regulated these days, it’s squeezed_one investment dollar at a time. When even the largest carriers cannot make a profit, what does this say about our industry as a whole? It says that the priority_bringing desired service to the public at a price it will pay_has gotten lost in the equation. Instead, the balance sheet shows the effects of federal greed and corporate greed, in a race to see who can make the most before the bubble bursts.
Our industry requires the trust of the financial community, including banks, underwriters, brokers and venture capitalists. That trust, which we used to take for granted to get a new service or technology off the ground, is quickly eroding. Lenders aren’t fools, and only a fool lends money to a company that has to spend a billion dollars at auction before the first antenna goes up. The risk is simply too great. Better to invest in the company that supplies the others with red ink. A look at “The Journal” shows that our giants have joined the federal government as major consumers of that commodity.
Schwaninger, MRT’s regulatory consultant, is a partner in the law firm of Brown and Schwaninger, Washington, DC. He is a member of the Radio Club of America.
