The Shoeshine Column: Rocom has flossy recipe for wireless profit

Friday 6th April 2001

Ever been stuck halfway up a mountain checking your inventory online and felt a violent urge to floss your teeth?

Probably not. So you may not have been impressed with the array of cellphones and other wireless widgets flourished at a briefing last week by sharemarket newcomer Rocom Wireless.

The high point was an energetic routine by Luigi Cappel, the company's wireless computing director.

Cappel must have an exceptional tailor. Although he's a lean fellow and was clad, seemingly, in a well-fitting suit, he managed to produce, like rabbits from a magician's hat, at least 10 cellular handsets and PDAs (personal data assistants), strewing them around the table top like so many metallic bricks.

And that, Cappel declared, is about what they're worth if they're bought, as many have been, as the CEO's latest toy. Even if, like Handspring's model, they have a built-in dental floss dispenser.

Rocom is aiming to fix all that, and make a pile of money, by guiding companies through the advantages and pitfalls CDMA (code division multiple access) and eventually third-generation mobile technologies will bring.

So far it's done a lousy job of selling the vision. After a euphoric burst on first listing - the 50c shares shot up to 140c within days - the market has more or less ignored them and they are trailing at a discount to the issue price.

Part of this is due no doubt to the deflation of investors' love affair with high-tech companies, reflected in the collapse of the Nasdaq index.

But Rocom is no internet start-up. It has been around since 1987 and had revenues last year of $16 million. On 2001 forecast net earnings of $480,000 it's trading at a modest prospective price-to-earnings ratio of 10 times.

So investors either don't get it, or they don't buy it. They can be forgiven for either.

Until now the company has had, it has to be said, an unspectacular career.

Founded in 1987 it began life selling fax machines and assorted telecommunications paraphernalia. It was around to pick up the mobile explosion which took the number of users from 358,000 in 1995 to 1.9 million last year, an average annual growth rate of 40%.

It boasts agencies for most of the major handset sellers and a resale agreement with Telecom. Over the years it has seen off a slew of competitors. But selling boxes hasn't been a fast-growth activity, as evidenced by its revenue figures.

The direction changed in 1999 when executive director Richard Guy bought out his partner, Paul Van Dorp.

Guy concentrated on mobile communications, getting out of fax equipment, and on the corporate market, closing down many of the company's consumer and small business outlets.

In anticipation of Telecom's CDMA launch this July he took Rocom public, via the New Capital Market, in August last year. Luigi Cappel's wireless computing division was set up in October. In February Rocom completed a secondary public offer, raising $1.8 million to fund its ambitions.

These, Guy explained last week, are for Rocom to be a "mobile communications solutions provider" rather than a seller of boxes.

That means Rocom will hold hands with corporates wanting to deploy new wireless technologies from start to finish.

Cappel is fond of recounting how executives are always asking him which box is best. His answer is invariably "what are your needs?"

Rocom plans to take customers through those CDMA applications they might actually need, ie, those that will provide a return on investment.

Then it will write the software needed to integrate the applications with existing systems. It will train staff and supply after-sales service.

It will also act as an MVNO (mobile virtual network operator), buying packets of data from network owners and reselling to the end user. The aim, as Guy puts it, is to provide the right bandwidth at the right price, with the right billing.

All this sounds promising especially as there is, as yet, nobody in New Zealand doing the same thing.

But Shoeshine has learned to be wary of companies that make a lot of noise about the potential of new technology without explaining, in nuts and bolts terms, how businesses will benefit from deploying it.

Esolutions, for example, launched last year amid a burst of rhetoric about how it would develop applications that would revolutionise business. We haven't heard a lot since.

And there was some of that at Rocom last week. "CDMA is ideally suited to the needs of our corporate customers," managing director Steve Borich enthused, "enabling data-over-cellular applications that will revolutionise the way they communicate."

But Cappel made a fair fist of going beyond the fluff.

His Powerpoint presentation pictured a salesman on the road. Equipped with a wireless computer he'll be able, in the customer's office and in real time, to check the number and location of product units held in stock, place the order with delivery instructions, and print off an invoice.

Or take building inspectors. Instead of picking up job rosters from city hall each morning and returning with a sheaf of reports each evening they will be able to pick up and file electronically, saving, perhaps, an hour or two each day.

Bells and whistles or valuable business tools? The test will be whether corporates see a return via efficiency and productivity gains on the investment needed. Network owners will also need to make money. And so, of course, will Rocom.

Rocom is betting big that they all will. It's first off the blocks and others will be watching closely to see whether the business model works.

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