The transformation of Russia’s paging industry took a major step in late January when modest operator Multi-Page merged into industry giant Segol RadioPage Inc.
According to the terms of the agreement, RadioPage will create a holding company called EnergoNet, which will be responsible for all the company’s interests in Russia, and will market and develop paging and other wireless services under the EnergoNet brand.
United States-based RadioPage claims 25,000 subscribers in Russia, while Multi-Page, a Russian closed joint stock company, serves about 15,000. Together, they now command the largest subscriber base in the country.
At this time, paging operators in Russia are in the process of consolidating for several reasons. Despite its small size, Russia’s paging market is highly fragmented. Paging penetration is less than 1 percent, yet more than 35 carriers compete in the market. There are more than 20 operators in Moscow alone.
CIT Publications’ Datafile of Eastern European Telecommunications reported Russia had 2,000 paging subscribers in 1991. By August of last year, Russia had 250,000-98 percent of which are alphanumeric subscribers. CIT predicts subscriber numbers will reach 1.5 million by 2000.
According to information from Multi-Page, the five largest operators control about 62 percent of the country’s paging market, with about 12 percent each. The next 11 “second-line” companies hold about 30 percent of the paging market. A host of smaller operations share the rest.
As the competing carriers all concentrate on direct sales, paging devices are more expensive than airtime; operators there say most networks are marginally profitable. Russian law prohibits selling items for less than cost, so whoever has the purchasing power to buy at the lowest price can better afford to sell at the lowest price. That’s why paging operators are looking to consolidate-to command greater purchasing power.
Consolidating licenses also is the only way to obtain a nationwide paging license. Each carrier has a license or licenses for a certain region. The only way to combine these regions into a national system is by acquiring or merging with companies that hold other regional licenses. The government, by awarding some 80 paging licenses, created this clutter and currently is amending its regulatory framework to allow for nationwide networks.
Given this scenario, it is only a matter of time before all these companies begin teaming up. Last year, Vesso Link and United Paging Network joined to mark the beginning round of acquisitions.
According to Clayton Loges, president of RadioPage, his company’s acquisition is about much more than customers.
“It is a strategic merger that goes far beyond an addition of subscribers,” he said. “First, in a highly fractured market like Russia, it is important to build mass to establish leadership. Thus, we combined our subscriber bases to build mass, realize efficiencies and improve purchasing economies.
“Second our strategy assumes that paging is changing so that wireless messaging is only one of several significant revenue channels that will result from the development of paging frequencies.”
Since the merger, RadioPage restructured its board of directors, the composition of which reveals the company’s various intentions for the future. Michael Walker, chief executive officer of Multitone Electronics of the United Kingdom, was elected chairman of the board. U.K.-based Multitone is a manufacturing subsidiary company of Kantone Holdings, and Champion Technology Holdings Ltd. of Hong Kong has experience in telemetry applications.
Also on the newly elected board is Nikolai Simichev, director of Russia’s second largest electricity provider Mosenergo, which is a major investor in Multi-Page. Loges said RadioPage plans to provide the network for wireless meter reading for Mosenergo, using Multitone’s telemetry expertise.
“The most serious service offering that we will pursue with these combined forces will be telemetry,” Loges said. “We believe this foundation of experience will be significant to our efforts.”
“In cooperation with our shareholder, Mosenergo, we plan to develop additional networks with other local and regional energy companies,” he continued.
Other directors elected include Charles Boensch, general director of Multi-Page and president of EnergoNet; and Robert Ennis, senior vice president of The U.S. Russia Investment Fund, or TUSRIF. TUSRIF is a private investment firm capitalized with US$440 million in grant funding from the U.S. government, designed to assist Russian companies in developing a market economy. At the first board meeting of the newly combined company, RadioPage announced that TUSRIF will invest US$2.5 million into the company.
The board of directors said the new funds will be used for pager inventory, additional operator facilities and infrastructure equipment to expand current networks and build others. The Russian government’s selection of Motorola Inc.’s FLEX protocol has forced all paging operators to look closely at their infrastructure strategy for the future, and not all carriers are pleased with the decision.
“The design, deployment and management of a high-speed FLEX network is substantially more complex than a POCSAG Network,” Loges said. “Thus, these networks will require more resources in terms of capital, technical support, etc. At this time, we do not plan to replace any POCSAG networks with FLEX. We expect to give very serious consideration to high-speed FLEX for additional networks that we plan to build.”
RadioPage will get help from TUSRIF, which also will provide a line of credit for additional investment in network facility expansion and to develop new wireless technologies.
RadioPage plans to pursue further sources of revenue as well. “We believe that our strategy will require our company to turn to a public offering to raise the needed capital for our expansion strategy,” Loges said.
Loges added that RadioPage plans to acquire additional paging companies in the future, as several acquisition possibilities will be submitted to the board for consideration later in March.
