The paging industry is trying to break away from the cheap beep. (ATI comments)
The industry's best-case strategy, as described by industry executives, is this: Telecommunications' most troubled sector is on the verge of revitalizing itself by catering to the rising demand for instant information gratification via e-mail and the Internet. Traditional customers will supply the steady cash to pay for advanced paging networks and develop premium-priced applications for consumers and corporations.
"It's going to be so exciting. It's the future of our business," said John Beletic, chief executive of Dallas-based PageMart Wireless Inc., a leader in the advanced messaging rally.
New products guarantee that customers will get their messages and will let them type in responses. Coming soon: a greater variety of information delivered to pagers, including sports scores, stock prices, driving directions and weather -- customized to subscribers' tastes and location. Companies are also developing ways to use paging technology to monitor and even repair machines.
But there's a worst-case view, too: Paging might never pull out of the debt that drags down financial results and stock prices at nearly every company in the industry. If wireless data finally takes off, paging could be a poor competitor to mobile telephones, especially since advanced pagers will roll off assembly lines costing as much as top-line wireless phones.
Competition could lead companies to charge below break-even for some advanced services -- the very trap that got paging into trouble in the first place.
Analysts say the real story is somewhere in the middle. "Everybody tends to look at paging as sort of the dying technology, but that's not true at all," said Cynthia Hswe, who follows paging for the Strategis Group, a Washington, D.C., consulting firm.
While selling beeper service for a few bucks a month will never again be a growth business, paging companies will probably grab a piece of a wireless data market that is expected to climb to $20 billion by 2007.
But strategies differ and balance sheets matter, and the industry is beginning to consolidate. MobileMedia's rapid expansion led to bankruptcy and an acquisition by Arch Communications Group Inc. that became final in June and created the nation's second-largest paging company. MCI WorldCom announced plans to buy Jackson, Miss.-based Skytel Communications Inc., widely regarded as the industry success story, in May. Most analysts agree that other acquisitions will probably follow.
With crushing debt payments, paging companies lost money so consistently that executives years ago told Wall Street to stop looking at net losses and pay attention to operating results and cash flow. Companies are getting closer to becoming profitable, but only one has consistently produced positive results for years: Dallas-based Airtouch Paging Inc., a subsidary of Vodafone Airtouch, which doesn't report paging profits to the public.
Most paging stocks started falling in the mid-1990s, and many companies' shares remain at record lows.
The industry is so deep in the doghouse that some of Wall Street's largest investment firms no longer assign equity analysts to cover paging. (People who used to follow the industry now tend to specialize in Internet companies, whose heady stock upswings can mean lucrative analyst paychecks.) Officials with Addison-based Paging Network Inc. emphasize that the name of their new subsidary, Vast Wireless Solutions Inc., distances itself from its industry.
"This is anything but a paging company," said Mark Knickrehm, Vast's president and chief operating officer.
As much as any other company, Paging Networks represents the way the industry got into trouble. Known to customers as PageNet, it grew fast by offering customers inexpensive paging service.
But a sizable portion of PageNet's 10 million-plus subscribers actually cost the company money, and look-alike service made the company vulnerable to losing customers every time a rival cut prices.
As with other companies, PageNet's network investment meant a heavy debt load. It also invested $500 million more in an advanced system to carry voice messages the service executives believed would change the industry.
Voice paging, introduced in 1997, was a spectacular failure. Customers complained about poor service quality and the bulky Motorola pagers. PageNet pulled back the service without ever fully rolling it out, and its stock plummeted from a peak of nearly $30 a share. Share prices never recovered, currently trading near its all-time low of less than $5 a share.
PageNet's CEO left the company. The company hired former Sprint Corp. president John P. Frazee Jr. and brought in industry consultants to find ways to improve results.
The result: PageNet began a dramatic restructuring that it says will lead to profits by the end of 2000. The company spent $75 million to convert its voice network to provide high-capacity data services. It raised prices to the 30 percent of customers who were costing the company money, leading to a loss of nearly 1 million subscribers.
PageNet is consolidating its customer-service operations -- a change executives expect to save about $50 million a year while improving service. And, it formed the new Vast unit, which is developing advanced paging applications for sale to consumers, corporate customers and other wireless communications firms.
The company also risks violating covenants with some of its lenders, remaining within the agreements only by reverting to old accounting standards.
The results so far are spotty. PageNet's customer count is down more than anticipated, disappointing analysts. The transition to the new customer service centers is costing more and taking longer than Wall Street expected.
Vast has three divisions. One will sell name-brand information services to consumers, such as CNN or ESPN sports scores. A second develops customized applications for corporate customers, and a third will automatically format content or applications for use on a variety of different wireless networks making PageNet's competitors potentially customers.
Mr. Knickrehm says that Vast will produce sales "in the double-digit millions" in 1999 mainly from the second two divisions and that its revenue will more than double annually.
PageNet's shares fell last week after it announced second-quarter financial results. "People are a little disappointed we're not seeing the synergies from the back-office consolidation," said William Power, an analyst at Hoak Breedlove Wesneski & Co. in Dallas. "They're looking at a pretty difficult third quarter," he added.
While many companies with troubled results blame broader industry woes, Paging Network executives make a point of saying their problems are unique to the company -- and that they'll pass. "This is not the paging sector dying and becoming a piece of roadkill," chief financial officer Julian Castelli told investors at a June conference sponsored by Goldman Sachs.
A few miles south of Paging Network, PageMart is pursuing a different strategy that some analysts say give it a bigger chance of success.
PageMart partnered with other companies, allowing them to provide service over its $400 million advanced messaging network -- a plan that analysts say will help recoup its investment. Resellers include Metrocall Inc., AirTouch Paging and Arch Communications Group.
"The very first thing we're going to be the very best at is a carriers' carrier," Mr. Beletic said.
The strategy makes them "the best-positioned to reap the rewards of advanced messaging, in my opinion," Mr. Power said.
But questions remain about the viability of the pager itself.
The number of mobile phone customers passed paging customers in 1996, at just over 40 million subscribers. And while paging subscriber growth is flattening, mobile phone companies are adding subscribers at double-digit rates.
Phone prices are falling, and many now have the capacity to send short messages -- just like pagers do.
About 1,500 employees at Nampa, Idaho-based Micron Electronics turned in their pagers earlier this year in a cost-saving measure. While some have asked for them back, many say they prefer keeping their wireless phones.
"It's the best solution for me," said Denise Smith, a company spokeswoman, who gets 15 to 20 calls on her cell phone and three or four text messages a day. "With a pager you can experience delays in receiving the page. A cell phone for me is instant access."
Pagers have some advantages Mr. Beletic cites better coverage, longer battery life and full-alphabet keyboards on new devices. But some customers say they only need one wireless device, and it will be a cell phone.
Some customers remain loyal to their beepers. "I don't want to have to carry that cell phone everywhere," said Phil Burnett, a small-business owner from Richardson.
The debate will continue as the products mature a relief to Airtouch, which offers both.
"The two sides war back and forth," said Jean Tripier, director of corporate development. "We can let the customer decide." |
