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PageNet Officials Send Mixed Signals With Stock Sales

March 29, 1995

Paging Network Inc., the largest service provider in the paging business, is broadcasting some off-tone beeps.

As Wall Street analysts dream about a boom in wireless pagers, corporate insiders at the largest paging operator have been selling prodigious amounts of stock at declining prices. Since the beginning of the year, George Marshall Perrin, chairman of Paging Network (known in the trade as PageNet), has sold almost 500,000 shares from his holdings, according to CDA-Investnet, a market-research firm that specializes in insider transactions.

``Almost all his net worth is in PageNet shares, so he is merely doing a little portfolio diversification,″ said a spokeswoman for PageNet. ``He remains a major shareholder and his intention is to remain a major shareholder. This is just a prudent investment decision.″

Since Jan. 30, Mr. Perrin has sold shares at as much as $34.75 each Jan. 30 and at lower levels since then, down to $32.75 a share Feb. 28, raising about $16 million, according to CDA-Investnet. In selling his shares, Mr. Perrin has trimmed his holdings by 37 percent. He holds an additional 242,000 stock options, of which 75,000 are nonexercisable.

Mr. Perrin isn’t alone in diversifying his holdings. Since Jan. 30, PageNet corporate insiders have sold more than 1.1 million shares, according to CDA-Investnet, in prices ranging from $34.88 down to $32.75 each. Among the biggest sellers: Bryan Cressey, a director, has sold about 215,000 shares; Carl Thoma, also a director, has sold about 300,000 shares.

PageNet currently trades at around $33.25 a share on the Nasdaq Stock Market.

During the past two months, as corporate insiders have readjusted their holdings, Wall Street has continued to crow about the company’s prospects. On March 14, Bear Stearns began investment coverage on PageNet with an attractive rating. On Feb. 6, in the midst of Mr. Perrin’s selling spree, Prudential called PageNet the ``best idea″ in wireless.

Historically, the paging business has catered to blue-collar businesses, such as plumbers and painters, as well as the medical profession. The hope, however, is that individuals, spurred by the information revolution, would eventually flock to the wireless communication devices.

To an extent, they have. Analysts estimate the industry has about 30 million subscribers. But so far the only firm making money on the whole business has been Motorola Inc., the primary maker of pagers. The service operators, most of which lease the paging devices to customers, haven’t made money.

PageNet, for instance, has yet to report profit from its massive paging business. With an estimated 4.4 million customers at the end of 1994, PageNet, of Plano, Texas, posted a net loss of nearly $18 million, or 35 cents a share, on revenue of $411.6 million. Cash flow, a key measure for paging-service operators, rose 40 percent to $140 million in 1994 from $100.2 million in 1993.

``They haven’t had the earnings, but that doesn’t matter as much as cash flow,″ said John Bauer, a Lehman Brothers analyst, who recommends PageNet.

Mr. Bauer said the paging business is about to explode, driven by three key factors: the declining price of paging services, the broadening distribution of paging services and a demographic shift that will provide a growing market of younger customers more enthralled by immediate communication.

``For instance, my parents aren’t heavy telecommunications users, they don’t even have an answering machine,″ Mr. Bauer said. ``My generation wouldn’t be caught dead without an answering machine, and the next generation coming into the marketplace has an even higher desire for immediate information, and a pager provides that kind of immediacy.″

But even Mr. Bauer admits that the paging industry, which basically provides beeper service, hasn’t changed much since the 1970s. As pagers have continued to provide the same basic service, cellular phones and other wireless communication devices have entered the marketplace.

Mr. Bauer and other enthusiasts, however, say PageNet may finally be positioned to make the first major innovation in paging with a voice-oriented product called VoiceNow scheduled for release in early 1996. The product would permit callers to leave not only a phone number in the pager, but also a voice message.

``We think this product could drive PageNet dramatically into new consumer markets,″ said Frederick Moran, an analyst with Salomon Brothers.

For all the excitement about wireless communication, and the reported 30 million subscribers in the business, PageNet faces some stiff tests. For one, the industry ``churn″ rate of 2.5 percent to 3 percent forces operators to replace almost one-third of its subscriber base every year. In addition, the new voice product, which has required a large capital expenditure, remains unproven. And PageNet’s competitors, including units of AT&T and BellSouth and a spinoff of Pacific Telesis have deep pockets to develop new products.

Moreover, some analysts said that as paging costs have declined, so have cellular-phone costs. Some question whether cellular phones will eventually provide stiff competition for the more plain vanilla wireless paging industry.

Mr. Moran, for one, while excited about the long-term prospects for wireless devices, doesn’t recommend PageNet officially. ``Trends are strong, but they aren’t accelerating immediately,″ he said. ``And VoiceNow isn’t due out until next year, so it may be a little early.″

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