Ready To Coin It From Pay Phones

Agroup led by investor Chuck Davidson of Wexford Partners Fund is betting that "smart" public phones will soon displace the country's 2.1 million existing pay phones. So it has taken a 52% stake in Technology Service Group (TSGI), a provider of pay-phone systems and services to the Baby Bells.

"Upgrading pay phones to microprocessor-based hardware and software represents a market of $500 million to $750 million over the next five years," says a money manager close to Wexford Partners. Some 10% of U.S. pay stations have already been converted to smart phones, he notes.

One smart feature lets callers use prepaid debit and credit cards. The technology also permits portable or wireless pay phones to be installed in buses, trains, or taxicabs. For the Baby Bells, smart phones will allow remote monitoring of the pay phones for efficient billing and servicing.

Technology Service already has links with the Baby Bells, principally Nynex, Bell Atlantic, and Southwestern Bell, which accounted for $29 million, or 87%, of the company's sales in the year ended Mar. 31, 1996.

Coming up, says one money manager, is a $50 million contract Technology Service is expected to sign with a major Baby Bell to upgrade its phones. The company declined to comment on such a contract. One official who asked not to be identified says Technology Service will form alliances with one of the Baby Bells to install pay phones in Mexico, Venezuela, Brazil, and China.

Analyst Stuart Gauld of Brookehill Equities, which took Technology Service public on May 10 at 9 a share, says the company has a 30% to 40% share of the total upgrade business. He figures the stock, now at 10, is worth 20 based on his estimate of 40 cents a share for the year ending Mar. 31, 1997, and 65 cents for 1998.

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