In perhaps the biggest reseller default case ever, Paging Network Inc., PageMart Wireless Inc. and Metrocall Inc. all terminated their service agreements with San Jose, Calif.-based reseller EconoPage Inc., last month, citing the company’s failure to meet its payment schedule.
With 207,000 customers, EconoPage is believed to be the largest reseller to default on its payments to carriers.
“It’s definitely an aberration,” said Scott Baradell, director of corporate communication at PageNet. “We haven’t had, to my knowledge, a reseller of this size go out of business.”
According to the minutes of an Oct. 2 creditors meeting obtained by RCR, EconoPage held about $1.3 million in assets and $16.4 million in liabilities, half of which was owed to paging carriers.
“If you’re a wireless reseller, paying your airtime is kind of like paying your mortgage,” Baradell said. “It’s the first bill you have to pay.”
The company’s financial hardship was blamed on both its pricing and its expenditures. EconoPage grew from a small company founded with $20,000 in 1994, to more than 200,000 customers and 35 stores by offering deeply discounted service contracts, most of which were gained in the last year. Yearly contracts went for $89, two-year contracts cost $119 and three-year pacts cost $139. To compensate for these prices, the company conducted a brisk up selling and accessory business. The problem, said many, was EconoPage’s spending practices. The company spent lavishly on advertising and company fringe benefits.
According to Baradell, EconoPage had been lagging in payments in January, but PageNet restructured the company’s payment schedule and restricted it to one-year maximum contracts. Soon after, it again showed signs of financial stress.
Creditors were briefly stalled with talk of the company being sold. Industry insiders said SourceOne Wireless Inc. was considering purchasing EconoPage, but the deal fell through.
Once in default, EconoPage promptly notified its customers that their paging service would end Oct. 23. Customers flocked to the company’s various store locations demanding refunds, only to be greeted by closed doors and pulled gates.
Local newspapers reported an air of violent frustration by customers, some of whom began uprooting plants around the company’s headquarters and banging on the windows. The Sacramento Bee reported that police, fearing for the safety of EconoPage employees, escorted workers to their cars.
Since then, customers have directed their anger to a more effective method of protest, filing a class-action lawsuit against the reseller in San Francisco Superior Court.
Class representative David Benoit and attorney Alexander Trueblood, of the law firm Chavez & Gertler L.L.P., filed the suit on the customers’ behalf. Included in the suit are claims of breach of contract, unfair business practices and violations of the Consumer Legal Remedies Act, charging that EconoPage falsely advertised and failed to honor its obligations. Trueblood also said he is investigating whether paging carriers may be legally liable as well.
For their part, carriers are offering EconoPage customers-who already have been using their networks- discounted rates for a short period of time until the subscribers can arrange to switch service providers.
The 130,000 EconoPage customers who subscribed to PageNet will be able to convert service directly to the carrier if they choose, allowing them to keep their existing PageNet number. The transition will take place during the next two months, with PageNet offering a discounted rate of $60 for a prepaid one-year service contract.
According to Baradell a special 800-customer service number was set up to assist EconoPage customers in this process. “We were afraid this was going to happen and began preparing,” said Baradell. He also said this is a difficult thing for PageNet to do because it primarily focuses on dealing with businesses, not individual customers. “Dealing with 130,000 customers is not an easy challenge,” he said.
Bridget Cavanaugh, a spokeswoman for PageMart, said the company is offering EconoPage customers on its network three months for the price of one. “We’ve been a part of this unfortunate mishap ourselves,” she said.
Both carriers reported that the majority of EconoPage subscribers on their networks have opted to switch directly to their service.
