'Superhighway' has curves ahead

September 14, 1994|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Turns out there are a lot of potholes and detours on the information superhighway.

This much-ballyhooed concept has captured the imagination of a nation itching to find out what technology has in store for our homes and offices.

It also has triggered billions of dollars in both failed and completed deal-making, as well as relentless speculation over acquisitions, alliances and breakthroughs that may not ultimately be rewarded. Every company is a potential merger candidate these days.

While some firms appear truly plugged in to the future, others spout buzz phrases that leave you wondering if they know what they're talking about. Survival may be the greatest issue for industries and companies worried about being left at the starting gate.

There is ongoing controversy over who the ultimate winners and losers will be in this evolving technology.

"We see a vertical integration of the telecommunications industry resulting in several large behemoth companies with broadcast network, cable and satellite capabilities," predicted Robert Rosenberg, a consultant with Insight Research Corp. in Livingston, N.J. "Expect names of some of the regional telephone companies and second-tier cable companies to disappear through acquisitions."

The information superhighway is often thought of as just another way to get movies, but that market share growth may not be what some expect because so many competitors are involved, believes Michael Kwatinetz, information technology analyst with PaineWebber Inc.

"The interactive aspect is more important because it offers the consumer something different," he said.

Convinced that computers provide the easiest way to gain subscribers for new entertainment and financial services, Mr. Kwatinetz thinks Microsoft Corp. and Apple Computer could be big winners. Also prospering will be game providers Electronic Arts and Acclaim Entertainment. Long-distance carriers AT&T Corp. and MCI Communications could benefit from greater call volume, while Motorola Inc. gains from booming equipment sales.

Cable companies could be big losers, because as that industry fights to survive, it's being forced to provide services years before they're profitable.

"Because of new technology, the threat from cable companies and an emphasis on competition by regulators, only local telephone companies with the proper cost structure to defend what they've got and solid technology will survive," said Ray Liguori, local telephone analyst with Salomon Brothers.

Bell Atlantic, aggressively upgrading its network, is the technology leader among regional Bells, in Mr. Liguori's opinion, followed by Southwestern Bell. In cost structure, Ameritech and Bell Atlantic are tops.

"I see cable television boxes as the easiest 'can't lose' play, and they'll eventually have telephone hookups as well," said Louis Navellier, editor of the MPT Review investment letter. "But the overhyped wireless communications and paging systems stocks, some going public with absolutely no company sales, will be big losers."

Biggest beneficiaries of change, Mr. Navellier expects, will be Scientific-Atlanta and General Instrument.

"Companies in software, computer chips, servers and programming should excel," forecasts A. Marshall Acuff Jr., chief portfolio strategist with Smith Barney Shearson. "The losers will be 'back-end' suppliers of personal computers or TV equipment used to view the new technology, for they'll face incredible competition."

Oracle Systems is ahead of the pack in developing digital video servers that provide movies on demand and Intel Corp. is a leader in semiconductors, he noted. Programming firms Time Warner, Turner Broadcasting and Walt Disney Co. offer potential, but their stocks currently cost too much.

"A lot of money will be lost before it's made, for megabuck bids are taking place even though we don't know whether the future will be wireless, telephone or cable," warned Charles Clough, chief portfolio strategist with Merrill Lynch & Co. "Most growth will involve global telecommunications firms, and I'm skeptical about regional Bell companies spending money on 20-year-old cellular and cable technologies."

Telefonica de Espana, Telefonos de Mexico and AT&T will be big winners, in Mr. Clough's opinion, while equipment makers such as Nokia also hold promise.

"Biggest winners will be diversified programming providers, in addition to television networks, which have the most original programming and broadest reach," said James Goss, media analyst with Duff & Phelps Inc.

The direct-mail industry could be hurt by interactive technology, as could newspapers' retail, classified and real estate advertising if companies don't broaden their approaches. Mr. Goss recommends shares of content provider Reader's Digest and, because it has expanded into new media, Tribune Co. (which syndicates this column).

"Thus far, nobody but investment bankers have won, and we'll be lucky if we see winners this century," concluded Alan Gottesman, broadcast and advertising analyst with PaineWebber, who recommends Clear Channel Communications and Mexico's Grupo Radio Centro.

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