Calling All Cars, Calling All Cars : <i> There’s a holdup in the Bronx, Brooklyn’s broken out in fights, There’s a traffic jam in Harlem, That’s backed up to Jackson Heights, There’s a scout troop short a child, Khrushchev’s due at Idlewild-- CAR 54, WHERE ARE YOU? </i>
The jingle was the opening to the hit television program “Car 54,” first aired in 1961. Any casual fan knows that the program’s centerpiece was Car 54’s two-way radio, which dispatched Officers Gunther Toody and Francis Muldoon to trouble sites, where they would bumble and fumble as they attempted to restore law and order.
Car 54 faded from prime time in 1963, and so has much of the two-way radio business. Sure, cab drivers, paramedics and real police officers still depend on the two-way radio the world over. But for almost everybody else, the cellular phone, with its higher-quality sound, is today’s fashionable form of mobile communication.
But don’t tell that to Richard Somers, president of American Mobile Systems in Sherman Oaks. Somers says the two-way radio is primed for a comeback thanks to its lower price and some new technologies. And he insists that his company is best equipped to take us back to the future.
So far, however, AMS has been anything but a joy ride for investors. The company has 3,500 corporate customers, but it needs a lot more before it can turn a profit, something it has never done. Between July, 1982, and December, 1987, AMS lost $10.6 million on revenue of $9.3 million.
The company’s accountants recently reported that “the continued existence of the company is dependent upon its ability to acquire adequate financing.”
Its stock hasn’t fared very well. In 1985, AMS sold a unit for $10 (adjusted for a stock split), consisting of one share of stock and a warrant with an option to buy another share. Now, the warrants aren’t even trading and the stock has fallen to $4.13 a share.
Undaunted, Somers, 49, and his predecessors have spent the last five years setting up an intricate network of radio frequencies in 25 cities nationwide in hopes that two-way radio really will hit it big. AMS distributes radio equipment manufactured by other companies, but its primary business is selling air time on the frequencies it owns. The frequencies are in the 800-megahertz range; the typical FM radio operates on a band from 87.6 to 108 megahertz.
Most of the money AMS raised from investors went into building its system of frequencies, which included purchasing rights and licenses to particular radio channels and setting up transmitters atop mountains or skyscrapers.
26 Channels Reclaimed
But some of the money was poorly spent, acquiring frequencies the company couldn’t possibly fill. For instance, the Federal Communications Commission--the agency that monitors two-way radio--took back 26 of the company’s channels in Texas last year because not enough people were using them. The agency then reassigned them to AMS’s competitors.
“We don’t expect to lose any more,” said William Young, AMS’s vice president, who claims that the company is steadily adding customers, among them Yellow Freight System in San Francisco and Philadelphia, and the Wall Street Journal in New York and Miami. Both use AMS frequencies to communicate between their central offices and their trucks.
Conversations Interrupted
It used to be that the two-way radio was more like a citizens’ band radio than a car phone--you could listen in on other people’s conversations and even interrupt them if they were using the same frequency you were.
“Anybody could hear anyone else talking on the same frequency,” said Somers. “It was annoying.”
Someone calling for a taxi occasionally would find several drivers undercutting each other on his doorstep after his address had gone out over the radio.
Now, thanks to the microchip, all conversations are private. And now, two-way radio’s reach is far greater than it was when Toody and Muldoon had to stay within the 53rd Precinct if they wanted to talk to Capt. Block. The two-way radio user “can make calls to and from anywhere in the world,” said Somers.
Greater Reach
In the standard two-way radio setup, in a prime frequency area, customers need only pick up their phone, which has, in effect, an open line to, say, their dispatcher and can start talking. Outside the frequency area, however, the customer must dial a specific telephone number, much like making a long-distance call.
Somers said doctors and lawyers are taking advantage of this greater reach in several cities, including New Orleans and San Antonio--where cellular is still in its early stages of development--and are using two-way radios in their cars instead of cellular phones.
So what’s the catch? The clarity of the connection on a two-way radio is still scratchy compared to a cellular phone, and two-way radios are only dramatically cheaper on short calls. Users of two-way radio pay 25 cents a minute for the first three minutes during peak hours, then 39 cents a minute thereafter, plus a $10 monthly fee. This compares to about 45 cents a minute and a $50 monthly fee for a cellular phone. But if the two-way radio user is traveling outside his territory and must make a local call, it works out to the same rate of 45 cents per minute as cellular.
The task for AMS is much like that of the operator of a cable television franchise. It requires an enormous amount of money to buy a franchise and get it started, but once it is up and running, operating costs aren’t that high. If companies can recover their initial expenses, the franchises turn into virtual moneymaking machines as they sign up more and more subscribers.
In AMS’s case, the company breaks even once it hits 35% of capacity on each frequency, and Young says the company is getting close.
The trouble is that competition for clients in the two-way radio industry remains plentiful. The AR Corp., a research firm in Atlanta, said that the millionth radio will be turned on sometime in 1988 and that annual revenue in the business will exceed $1 billion. Young estimates that there are 15 to 20 rival firms in every one of the cities AMS serves.
While most are Mom-and-Pop operations that buy some space on a radio or TV tower, there is one company outdistancing AMS. Fleetcall, based in New York City, has acquired frequencies with 40,000 subscribers in its first year of operation, double what AMS has done in five years. One of Fleetcall’s biggest territories is Los Angeles, which AMS doesn’t serve even though its corporate headquarters are here.
Nevertheless, Young predicts that AMS’s operating expenses will be met by its revenue by June although he concedes that it will be several years before the company reports a profit as AMS spends more money expanding.
Somers and Young aren’t taking any chances with their own money. The two took control of AMS in February after its previous chief executive retired and after the company bought Autotel, a two-way radio network Somers and Young started. Most of its business is in Florida.
But instead of being paid in AMS stock--often the route when a struggling company makes an acquisition--Somers and Young insisted that at least part of their take be in cash. They received $5.5 million, roughly $1 million more than AMS’s revenue for all of fiscal 1987. Somers and Young also are getting an aggregate $250,000 in salary.
Do Somers and Young know something investors don’t? It depends whether the investors read their prospectus.
To borrow money in the past six years, AMS had to grant a staggering number of options and warrants on its stock. Keep in mind, there are only 5 million outstanding shares of stock. But the warrants, options and convertible debt cover another 12 million shares. Should the stock go up in price, the corporations that hold those warrants and options will start exercising them. The avalanche of new shares on the market could force the stock back down.
To stay motivated, Somers, who got his ham radio license at 13, has collected a couple of mottoes that hang on his office wall. One of them reads: “Hustle is being the sorest loser in town.”
Will Somers have to fight investors for that distinction?
