CER2520@ritvax.bitnet (C. E. Reid) (10/07/89)
[Reprinted without permission from Democrat and Chronicle, a Gannett Rochester
Newspapers, Rochester, New York, Wednesday, October 4, 1989, page 10D]
ROCHESTER TEL BUYING 4TH PHONE COMPANY IN WISCONSIN
Local firm planning to speed up acquisitions
By Phil Ebersole, Democrat and Chronicle
Rochester Telephone Corp. executives, announcing their 11th
telephone company acquisition so far this year, told financial
analysts yesterday they expect the pace of acquisitions to
accelerate.
Their latest acquisitions, St. Croix Telephone Co., serving 5,300
access lines in northwest Wisconsin, will be Rochester Tel's
fourth acquisitions in Wisconsin, its 13th in the Midwest and its
22nd overall.
John K. Purcell, a Rochester Tel vice president in charge of
acquisitions, hinted that Rochester Tel soon may make its first
acquisition west of the Mississippi River.
Minnesota, for example, would be a happy hunting ground from
Rochester Tel's point of view.
Companies with fewer than 15,000 access lines, the kind of small
company Rochester Tel likes to buy, can increase rates up to 10
percent a year, within certain financial limits, without review by
Minnesota regulators.
Purcell said he visits 95 to 100 telephone companies a year. In
all, there are 483 independent telephone companies in the United
States serving more than 1,000 access lines.
Fred R. Pestorius, vice president of finance, said Rochester Tel
plans to speed up its pace of acquisitions. Other parts of its
strategy are to use technology to add new services and to expand
unregulated businesses, such as the RCI Corp. long distance
service, to achieve economies of scale.
Small rural companies generally enjoy faster revenue and profit
growth than Rochester Tel's core six-county service area around
Rochester.
Alan C. Hasselwander, president and chief executive officer, said
that's because New York regulators require Rochester Tel to
subsidize small rural telephone companies elsewhere in the state,
mainly through the way long-distance revenue is shared. By his
calculations, those subsidies are equal to $2 a month for every
access line.
Small rural companies, on the other hand, receive subsidies, said
David Mitchell, executive vice president of Rochester Tel's
Telephone Group. The logical conclusion, which he didn't draw
explicitly, is that it makes sense for Rochester Tel to get on the
receiving end.
Rochester Tel also has a goal of having one-third of its access
lines outside New York state so as not to be dependent on one
state's regulators. Currently, about 15 percent of its access
lines are outside the state.
Other companies -- notably Century Telephone Enterprises of
Monroe, La., and Telephone & Data Systems Inc. of Chicago -- also
are buying small telephone companies.
Mitchel said Rochester Tel won't outbid its rivals by paying more
than a company seems to be worth. But Purcell said it has an
advantage in its record of allowing its subsidiaries to continue
to maintain their own separate identities.
He also said Rochester Tel doesn't rule out buying larger
companies, but so far none has been offered for sale.
The St. Croix acquisition will include New Richmond Cable, a cable
television company with about 1,200 customers. It will be
Rochester Tel's second rural cable television company, along with
one in Indiana.
"In our judgment, cable TV is a natural adjunct of the telephone
business, offering great growth potential," Mitchell said.
Federal law bars telephone companies from the cable TV business in
all but the smallest rural communities.
Hasselwander said there's a good chance the law will be changed
and he'd like to enter the cable business in a few years, after
completion of Rochester Tel's fiber optics network, which could
carry many channels of TV signals.
On Monday, Rochester Tel warned that profits for the second half
of 1989 will be less than in 1988. The stock price, which had
gone up from $26.625 a share (adjusted for 2-for-1 split) to
$44.875 on Friday, fell $2.50 a share on the news. Yesterday it
closed at $43.375, up $1.