Numeric paging service, which for years was the bread and butter for paging resellers, could be their doom in a market of increased competition, decreased rates and customer savvy.
Industry disagrees about who is responsible-carriers, or resellers or both-for the drastic price drops, but agrees resellers must put value back into their services to survive.
Alphanumeric could be just the ticket.
“Carriers have shot themselves in the foot. Numeric paging is a commodity. It’s like baked beans. You buy the cheaper,” said Ian Guillott of IDC/Link Resources in Austin, Texas. “No one can tell the difference in SkyTel’s service and PageNet’s service. You get a beep, there’s the number. That’s all. The people using numeric these days are the ones that can’t afford alpha or don’t want to,” said Guillott.
David Honig, national sales director for Affordable Message Center, agrees numeric is a commodity. AMC resells alphanumeric service to smaller resellers and provides dispatch services.
“What’s happening right now, for every new (numeric) customer resellers are signing on, they are canceling another customer,” said Honig. “These customers that are canceling were paying $6, $7, $9 dollars. The new customers are paying maybe $4 because there is so much competition.” As a result, even resellers showing positive numbers may be losing revenue.
Some customers are being canceled because they did not pay. Others are churning for various reasons.
“These big carriers are just lowering their numeric prices to the resellers thinking that they’re going to sell more, and they’re not,” added Honig. The demand for numeric is no longer high enough to support such low prices.
John Zahurancik, a paging analyst for The Strategis Group in Washington, D.C., said resellers have placed pressure on carriers for prices to come down, and recently there has been a backlash from carriers.
“Carriers are taking a second look at their distribution.” Some carriers are pulling back from the reseller market, including Metrocall Inc. and American Paging Inc., he said. These carriers are focusing more on direct business. For resellers, the pressure is on to get those accounts at preferential rates, added Zahurancik.
In 1996, Strategis (formerly Economic and Management Consultants International Inc.) reported average revenue per customer was $9.40 for numeric and $14.30 alphanumeric. Zahurancik said these numbers are much lower in big cities.
IDC/Link Resources calculated average revenue per subscriber for numeric service in 1996 at $7.52 per month. By 2001, he expects the figure to drop to $6.32.
“Numeric is a buyer’s market,” asserted Honig. “The customers know what they want and how much the going price is.” On the other hand, alphanumeric is a seller’s market, he explained. “These customers are seeing Motorola (Inc.) ads on TV. They see it’s a nice piece of technology. They come in and ask about it. This is where the reseller has to proactively teach this customer about alpha … If people come in and inquire about it, chances are they want it. They just need to be sold on it.”
“The pricing (of alphanumeric) has gone down moderately over the years, to a point where now almost anyone can afford it,” said Honig.
“A lot of business users that were using numeric before are moving to alpha,” said Guillott.
To boost existing subscribers from numeric to alphanumeric service, some resellers are offering upgrades, explained Honig. Customers receive a credit toward alpha service in exchange for their numeric pager. In turn, the reseller can sell that used pager. Honig added that less churn occurs among alphanumeric than numeric customers.
For resellers to survive, Guillott said they need to increase their value proposition. “Basically, they have got to make sure their end users and the carriers supplying them see them as more than just a simple numeric channel.” Resellers need “size and presence in market so they can make an impact,” which is easier said than done, Guillott added.
Alphanumeric paging and advanced paging services like two-way messaging and voice paging may help increase the value of paging on the whole, Guillott noted. But some carriers will market the more advanced services to select resellers only. “I would not want a higher value product going through a channel associated with lower value (products).”
Ann Lynch, analyst with the Yankee Group in Boston, said resellers may benefit by signing on with carriers that have networks already running Motorola’s FLEX protocol, which offers cost efficiencies for numeric and alphanumeric paging.
Alphanumeric uses much more spectrum than numeric, so carriers traditionally have focused marketing efforts on numeric service because it generated more revenue. But capacity increases-generated from the FLEX advanced protocols, which allow for frequency reuse, and more spectrum secured by carriers-now provide a better business case for alphanumeric service.
“I think alpha growth is going to explode,” said Lynch.
Zahurancik agreed that recent increases in capacity is driving growth in alphanumeric paging. Carriers “also want to sell a service they can gain more recurring revenue,” he added.
In an October report, IDC/Link Resources forecast that distribution of paging services through the reseller channel will decrease in the next five years. In 1996, carriers’ average distribution mix was 46 percent reseller, 41 percent direct and 13 percent retail.
Going forward, successful carriers will be those with brand awareness, said Guillott, which means resellers could get squeezed. Guillott added that he expects only four or five carriers will remain by the turn of the century, and that these companies will be reselling to big players also with brand recognition, like MCI Communications Corp., Sprint Corp. and others.
