Q-What do you think of the future of cellular phones? If it’s good, would you recommend that I buy McCaw Cellular Communications or American Telephone & Telegraph, which recently bought 40 percent of McCaw?
A-Consider Cellular Inc. (CELS-$13.50), which may give you more change and a louder ring for your dollar than McCaw or AT&T.
CELS was born in 1983, by the synchronous symbiosis of six small cellular companies, to operate, manage and finance cellular systems in which it has ownership interests. Since its inception, CELS has carefully cobbled an integrated network of contiguous cellular systems primarily in the mountain and plains regions of the United States. The company now owns 85 cellular phone systems in 17 states and is still growing.
CELS hasn’t earned a dime’s profit since conception; however, margins, revenues, operating cash flow and new customers are showing double- and triple-digit improvements. Last year, revenues per subscriber increased 18 percent, the subscriber base increased by 91 percent, service revenues increased by 201 percent, losses decreased by 25 percent and, according to CELS’ chief financial officer, “the best is yet to come.”
Currently, less than 4 percent of the U.S. population owns a cellular phone or fax machine. Because equipment prices are falling (in 10 years cellular fax machines will be given away with magazine subscription renewals), because technology is improving by orders of magnitude, because air time is becoming increasingly less expensive, because transmission technology is becoming inexorably efficient (during the next 10 years, cellular facilities may begin replacing wire-line facilities), because your personal phone number will become portable and because instant communication/access will be an expected public convenience, I believe cellular usage will increase tenfold within the coming decade.
AT&T paid $237 per potential subscriber for control of McCaw. Consider the fact that at $13.50 per share CELS is trading at more than $90 per potential subscriber. I think CELS is a pure play on this awesome potential whether you buy the common stock at $13.50 or the 6.75 percent convertibles at $82 yielding 8.2 percent. Have your broker get you an annual report.
Q-Your recent comments about the solvency of Social Security are inflammatory and so off base that they reek of stupidity. The system is 100 percent backed by the government, and all contributions are invested in U.S. Treasuries, the safest in the world.
A-So why is the government considering the elimination of the Social Security cost-of-living index and increasing the Social Security tax base by 70 percent? Because you may have mildew on the brain, I’ll give you an example a mooncalf would understand.
It’s 1993. You’re 25 and want to retire at 65 with a $24,000 annual income. Your abacus computes that $2,000 a year placed in a Magic Box would grow to $250,000 in 40 years. That would pay you $24,000 annually till heaven calls.
It’s 2003, and your $2,000 contributions have wondrously grown to $21,000. The National Enquirer is advertising surplus submarines that General Dynamics wishes to sell. The cost is precisely $21,000. So you take the bucks from the Box, write a $21,000 IOU (a U.S. Treasury Bond) and frolic with Captain Nemo ‘neath the waves. You continue to toss $2,000 in that Box each year.
It’s 2013. You’re 45, and Chrysler is advertising surplus Sherman tanks in The Village Voice for $29,000. Not quite the balance in the Box, but you want a Sherman for leisure travel. So you take the moola from the Box, borrow an extra $8,000 that is guaranteed by your future payments and craft a larger IOU. You still make those annual contributions.
It’s now 2023, and you are 55. Your son Archy, who is in college six states away, peruses the Sharper Image catalog and notes McDonnell Douglas is selling used F-16s for $24,000, a tad more than you have in the Box. No problem. You craft an IOU for $21,000 and a note for $3,000, and Archy flies home in 20 minutes.
During the next 10 years, the maintenance on those toys prevents you from adding cash to the Box. No problem, you just write IOUs every year.
Now it’s 2033, doomsday. You’re 65 and gotta wait two more years to collect Social Security. But some 71 million others are in line ahead of you hoping they can exchange their 40-year-old collection of IOUs for hard cash. Wouldn’t that worry you?
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Malcolm Berko welcomes questions and comments. Write to him at P.O. Box 1416, Boca Raton, Fla. 33429.
