Subject: [NEXTEL-1] Metro One's sales growth slows

From: Marcel <[email-masked]>
Date: Fri, 14 Feb 2003 13:26:19 -0500

Metro One's sales growth slows

02/14/03

JEFFREY KOSSEFF

Metro One Telecommunications, which stood tall while many midsize
technology companies shrunk, is showing vulnerability.

The profitable Beaverton
directory assistance provider
reported Thursday that its
quarterly revenue was lower
than a year earlier. That was
the first such decline since
the company went public in
1996.

Revenues for its fourth
quarter, which ended Dec. 31,
were $62.16 million, down
from $63.07 million in the last
quarter of 2001.

It's a minor drop, and Metro
One managed to earn 24
cents a share, or $5.84 million. But analysts are worried about what will
happen this year as Sprint PCS, whose business represents about
one-third of Metro One's revenues, stops using its directory assistance
services.

"It's going to be a trend that will occur for every quarter in 2003," said
Scott Sutherland, an analyst at Wedbush Morgan Securities.

Metro One is aggressively fighting to prevent a downward spiral -- by
expanding its client base beyond wireless-phone companies.

A few years ago, it never faced such pressure. By helping wireless phone
customers find out where to see a movie, score a good table at
restaurants or find their way around town, Metro One became one of
Oregon's fastest-growing companies. These "enhanced" directory services
took Metro One well beyond the traditional service of providing phone
numbers.

Metro One provides its service to wireless phone carriers such as AT&T
Wireless. The carriers charge customers for every call they make to 4-1-1,
typically around $1.25. And they pay Metro One a fee for each call,
usually between 45 cents and 50 cents. They keep the remainder for
marketing costs and profit.

But Sprint and other wireless companies have seen their profits erode in
the past year, increasing the pressure to reduce expenses. Because
Metro One's service is more expensive than competitors', analysts worry
that other companies might follow. Its largest contract -- with AT&T
Wireless -- expires at the end of this year. And Nextel, which makes up
about a quarter of its business, will have the option in the next few months
of backing out of its contract for a multimillion-dollar fee.

"It really depends on the service they want," said Seth Potter, an equity
analyst with Punk, Ziegel & Co. in New York. "Metro One has always had
better quality service with more features."

Tim Timmins, Metro One's chief executive officer, said the company is
pursuing new potential business deals, outside of its normal wireless
phone business. For example, it recently signed a deal to provide its
database to a contractor that serves companies and government offices.
And it's in talks to possibly provide directory assistance to a nonwireless
phone carrier.

"They're really interested in a lot of the enhancements we have," Timmins
said.

The company also is hoping to entice existing customers to dial 4-1-1
more frequently by offering new services. AT&T Wireless recently began
using MetroDex, a service in which customers upload their computer
address books to Metro One's servers. Then they call 4-1-1, and Metro
One's operators read the information or connect them to the phone
numbers in their address books.

"Although the number of users is still relatively small, it is growing,"
Timmins said, adding that he expects several hundred thousand users by
the end of the year.

Metro One has no plans to close its 31 call centers or lay off employees.
Because call centers have traditionally high turnover, it has reduced staff
by attrition. It employs about 5,600 people nationwide, down from slightly
less than 6,000 at the end of last year and 7,000 at its peak.

Metro One managed to post a revenue increase for the entire year:
$257.95 million in 2002, up 11 percent from $233.32 million in 2001. Its
2002 earnings were $26.13 million, or $1.04 a diluted share, compared
with income of $28.42 million, or $1.15 a diluted share in 2001, when the
tax rate was lower.

Its balance sheet remained healthy, with cash and cash equivalents of
$76.53 million on Dec. 31, up from $53.69 million a year ago. It posted no
long-term debt.

"The company is still making money," Potter said. "They've got a strong
balance sheet."

Metro One offered little guidance for next year, mainly because it doesn't
know the time frame in which Sprint will phase out its services. It expects
first-quarter revenues to fall between $58 million and $61 million, with
earnings a share ranging from 13 cents to 18 cents. In the first quarter of
2002, it saw revenues of $61.8 million and earnings a share of 22 cents.

Metro One reported results after markets closed Thursday. Its stock
closed at $5.04 on the Nasdaq Stock Market, up 4 cents. Its shares are
down 82 percent from a 52-week high of $27.45.

http://www.oregonlive.com/business/oregonian/index.ssf?/base/business/1045227434180160.xml

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