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Cellular Phone Stocks Jump

July 1, 1986

NEW YORK (AP) _ Stocks of companies owning cellular telephone franchises jumped Tuesday as investors sized up the impact of Southwestern Bell Corp.’s big splash into the market. But the stock of Southwestern Bell itself fell.

Southwestern Bell announced Monday it had agreed to acquire Metromedia Inc.’s cellular-telephone and paging operations, the nation’s largest, for $1.65 billion, a record price for a company in the booming business.

The price per potential customer was almost twice as high as cellular properties had been going for and it sent analysts scrambling to put new prices on other companies in the business, said Joel Gross, an analyst for Dean Witter Reynolds Inc.

″The assumed market value of these properties increased dramatically overnight,″ Gross said.

Cellular telephones work like radios and are popular with doctors, salespeople and business executives who need to make calls while on the road. There can be only two cellular operators in a city by law, and the cap on the supply tends to drive franchise prices up rapidly.

Lin Broadcasting, the second-largest cellular franchise owner after Metromedia, jumped $5.62 1/2 a share to $54.87 1/2 in nationwide over-the- counter trading.

Mobile Communications Corporation of America climbed $2.50 a share to $19 and Rogers Cablesystems edged up 25 cents a share to $15.75, also over the counter.

Affiliated Publications rose $2.62 1/2 to $60.75 on the American Stock Exchange.

Southwestern Bell, meanwhile, slid $7 a share to $102.50 in nationwide New York Stock Exchange trading. The stock had risen $2.12 1/2 a share on Monday.

Metromedia is privately held, so its stock is not traded on any exchange.

Southwestern Bell, based in St. Louis, is the regional Bell operating company covering Arkansas, Kansas, Missouri, Oklahoma and Texas.

Investors who sold Southwestern Bell stock appeared to be concerned the company might have overpaid for Metromedia’s properties, Gross said. He said Southwestern Bell is counting on projections of growth of 50 percent a year in revenue and customers and profit margins of 20 to 30 percent for the next several years.

″I think it’s very difficult to project (that) with any certainty,″ Gross said.

Standard & Poor’s Corp. said Tuesday it was putting the debt securities of Southwestern Bell Telephone Co. on credit watch with ″negative implications,″ meaning it was considering downgrading its ratings.

The telephone company is the major subsidiary of Southwestern Bell Corp. Standard & Poor’s said it took its action even though federal law prohibits the parent company from using money from its regulated telephone company to make the Metromedia acquisition.

Roger Wohlert, Southwern Bell Corp.’s assistant treasurer, said in an interview that he believes Standard & Poor’s will confirm the phone company’s current debt ratings once executives have a chance to tell their side of the story.

″We feel our projections are very realistic, perhaps on the conservative side,″ Wohlert said.

In another development, Graphic Scanning Corp. of Teaneck, N.J., announced it intended to sell to Southwestern Bell its share of cellular franchises in the four cities where it was partners with Metromedia: Boston and Worcester, Mass., Washington and Baltimore. No price was named.

Graphic Scanning owns part-interest in 25 other franchises. Southwestern Bell declined to confirm that it was negotiating to buy the four Graphic Scanning properties.

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