Defense-Technology Company Heeds a New Calling: Freeway Telephones
It is just a homely yellow telephone box planted on a pole outside Comarco Inc.’s Anaheim headquarters, but to company Vice President Don Bailey, it represents as much as $100 million in potential future sales.
For a company accustomed to designing exotic computer software to guide fighter pilots through enemy territory and to engineering the latest in U.S. weapons technology, the yellow box represents a somewhat mundane new market.
But if Bailey’s instincts are correct, it could transform the traditionally defense-dependent company into a more diversified technology firm within four years.
Inside the box is a solar-charged cellular telephone, one of thousands that eventually will be installed along freeways throughout California and other states.
Last week, the Orange County Service Authority for Freeway Emergencies selected Comarco and its call box partner, Cellular Communications Corp. of Laguna Hills, to build and install about 1,000 emergency call boxes along the county’s 137 miles of freeways.
Although a rival bidder has filed a lawsuit attempting to block the selection, Comarco executives are confident the job will proceed on schedule. Comarco and CCC intend to install the first phones by the end of this month and to complete the entire installation process within 18 months.
Relatively New Technology
The Orange County project, and a similar San Diego County contract expected to be awarded to Comarco and CCC, could serve as national showcases for cellular call box systems.
Cellular telephones represent a relatively new technology that can accommodate a virtually unlimited number of simultaneous conversations within the same geographic area. Introduced commercially only four years ago, cellular mobile phones already are in wide use in about 100 urban areas across the nation. Southern California is the busiest marketplace of all for the car phones.
Although Comarco and CCC have installed cellular call boxes for testing purposes in New York’s Central Park and several other potential markets, Orange and San Diego counties represent the first major commercial contracts for cellular freeway boxes.
Older networks, including the emergency call boxes lining Los Angeles County freeways, are physically linked by underground cables. The new cellular systems are capable of providing the same service at significantly less cost because they eliminate expensive installation and maintenance costs.
The Orange and San Diego county contracts represent a major new market niche for Comarco, which derived about 75% of its $78 million in 1986 revenues from engineering support and other services provided to the U.S. defense establishment.
Comarco’s pursuit of cellular call box contracts is part of a diversification strategy that could increase the company’s non-defense business to as much as 40% of total sales. Bailey envisions call box systems as a $300-million market within a few years, and Comarco believes that it can grab as much as a third of the total market.
Diversification Was Goal
“That was one of our major reasons for pursuing this,” Bailey said. “We were intentionally looking for computer applications that would allow us to diversify away from defense.”
In addition to its efforts to capture the California call box market, Comarco, working with CCC, is pursuing potential contracts in the cities of New York, Washington, Dallas, Houston and Honolulu. Comarco’s call boxes are also being tested in Florida and several Canadian provinces. The companies also are exploring other cellular applications, including the development of mobile credit card phones for use in rental cars, limousines and airport transit vehicles.
If Comarco’s cellular venture is successful, it will add momentum to the company’s recovery from an overly aggressive expansion program. Comarco reported a net loss of $1 million last year, which it attributed primarily to a write-down related to a recent acquisition. Last week, Comarco reported earnings of $254,000 on sales of $21 million for the quarter ended May 3.
Comarco’s improving results have not gone unnoticed. An investor group controlled by Nebraska businessman Alan Parsow recently disclosed that it had increased its stake in Comarco from 5.4% to 6.4% but claimed that it had no intention to seek control of the company. Parsow’s group said it bought 41,500 Comarco shares from May 29 through June 3 for $6.875 per share.
Comarco stock closed at $7.75 Monday in over-the-counter trading.
Call Box Legislation
The company’s involvement in the call box business began in 1985, when the company was approached by CCC founder Michael Nasco. The California Legislature then was considering a bill to allow counties to levy an annual $1 vehicle registration surcharge to finance the installation of emergency call boxes. Nasco proposed that Comarco and CCC join forces to design and market the devices.
Comarco accepted, the bill became law, and the two companies went to work.
Under the terms of their arrangement, Comarco assembles the call boxes and engineers and manufactures a key component, a circuit board that enables the system to automatically place calls and to monitor its functions. CCC, a unit of GTE Inc., handles marketing and development functions.
In Orange County, which has been collecting the vehicle surcharges since May 1, the annual fee is expected to raise about $1.6 million this year. The Orange County contract will total about $6 million for installation and maintenance of the devices. Comarco and CCC will receive about $3 million each.
Comarco’s call boxes contain cellular telephones powered by batteries that are recharged by solar panels mounted at the top of each pole. The phones connect stranded motorists with California Highway Patrol personnel, who can dispatch patrol cars or arrange other emergency services as needed. The CHP currently receives about 50,000 calls monthly from its boxes in Los Angeles County alone.
$40 Million for Hardware
Tom Franza, general manager of Comarco’s digital products division, said he expects about 10 California counties to approve the service authority surcharges within the next year. Over the next decade, those surcharges should provide a total of $90 million in revenues, of which as much as $40 million will be available for actual purchases of call box hardware.
“At the present time, we feel we should be able to capture 100% of that market until some viable competitor emerges,” Franza said.
At least one company, Cubic Communications of San Diego, is attempting to establish itself as Comarco’s primary competitor. Cubic entered a lower bid than Comarco and CCC for the Orange County project, but a 10-person evaluation team appointed by the county recommended selection of the Comarco system because of its advanced development and testing.
Last week, Cubic filed a lawsuit challenging the selection of Comarco and CCC. A hearing is scheduled for June 25 in Orange County Superior Court. On that same day, the county intends to proceed with a ground-breaking ceremony for the first call box installation, and Comarco executives say they are confident that Cubic will not prevail in court.
“There really is nobody that is as far along as we are in the use of cellular technology for call boxes,” said Bob Wattenberg, president of Comarco’s computer technologies group. “Cubic has not had the experience that we have had. We’ve been working on this program now for two years. We’ve had over a million and a half hours of test time.”
