Like the ugly duckling that was teased and spurned in its younger years only to mature into a beautiful swan, the two-way paging market is expected to someday spread its wings and lift the paging industry to new heights of subscriber growth and increased revenues.
Paging industry analysts expect narrowband personal communications service subscribers to jump about 270 percent, to 5.6 million by 2001. These subscribers further are expected to be the driving factor behind the prediction that paging revenues will double during the same period, to $10.7 billion by 2001.
This year marks a significant milestone toward making those figures a reality in that almost all the paging carriers awarded NPCS licenses in 1994 finally have announced their intentions to build two-way ReFLEX 25 networks and begin competing with Mobile Telecommunication Technologies Corp.
As it stands today, Mtel is the only carrier to launch a two-way text-messaging service, a ReFLEX 50 system. PageMart Wireless Inc., Paging Network Inc., AirTouch Paging and MobileMedia Communications Corp. resell service from Mtel.
PageMart, MobileMedia, AirTouch and TSR Wireless Inc. (a combination of TSR Paging Inc. and American Paging Inc.) all plan to begin building out NPCS licenses for two-way text messaging this year. PageNet and Conxus Communications Inc. each launched voice messaging NPCS networks last year.
PageMart has boasted it will be the first to launch a ReFLEX 25 network. Originally expected to launch in the first quarter, PageMart said it now hopes to begin offering the service in May. The carrier currently is testing in Austin, San Antonio and Dallas, Texas, and will launch in those markets and in 10 other undisclosed cities.
MobileMedia and TSR both said they plan to begin offering service this year as well, MobileMedia in unnamed selected markets and TSR in Pittsburgh. AirTouch said it plans to begin buildout by the end of the year and hopes to begin service in 1999.
So why now? When Mtel launched its SkyTel service, the company expected 200,000 subscribers by year-end. Between transmission difficulties, sporadic coverage and large, bulky devices, the carrier attracted only 15,000 users. When the reality didn’t live up to the hype, there was a stinging backlash.
“What we learned is that you really don’t want the customer to compromise,” said Kerry McKelvey, vice president of marketing for SkyTel. He said customers want a two-way pager that is about the same size as a numeric one with about the same coverage. Successful two-way networks will have to deliver that to succeed.
Why now?
What has changed in the paging industry that has caused four major carriers to jump on a bandwagon driven by only one other carrier for two years?
Well … (deep breath) more customers want alphanumeric service, and carriers need the increased capacity that ReFLEX networks provide to give it to them. Also, carriers need a way to offer enhanced services so they can increase their revenue-per-subscriber numbers, and vendors finally have come out with more sophisticated end-user devices so customers actually will want to use these services.
Let’s look at the alphanumeric growth trend first. Carriers have put off building out ReFLEX 25 networks in the past because there was no clear successful application for it. Two-way interactive paging has become more popular but is by no means a proven application. Guaranteed messaging, or one-and-a-half-way paging, is a much safer application but still not the primary growth driver.
Now that alphanumeric paging has become the new paging paradigm, it will require increased coverage, and carriers have come to realize that the added capacity a return channel gives is necessary to reduce the cost of transmitting the larger text messages. Building a ReFLEX network is a cost-effective move even if carriers use it only to offer plain alphanumeric services.
“It took a lot of thought, and if you look at where things are heading, PageMart is going to need greater capacity over the next five years,” said Wayne Stargardt, vice president of marketing at PageMart. “NPCS networks are a more efficient way to offer a nationwide alphanumeric network.”
More money
A carrier can realize a 50-percent increase in revenue for each subscriber migrated to alpha-based service. But why stop there? Once migrated to alpha, customers can begin receiving further revenue-enhancing information services. And with a return channel, carriers also can start offering the above-mentioned guaranteed messaging and two-way interactive messaging, and rake in even more revenue.
“The concept of two-way and advanced services are expected to reverse the industry’s falling revenues,” said Subodh Karnad, telecom analyst at Frost & Sullivan.
Full two-way interactive messaging is not expected to be popular or even offered outside of Mtel until at least 1999 or 2000. But guaranteed messaging and canned-response messaging are expected to be offered.
These advanced services are expected to gain popularity as end-user equipment for them becomes cheaper and more sophisticated. This is evident in the increased response to the second-generation devices introduced by Motorola Inc. and Glenayre Technologies Inc.’s Wireless Access Group.
Better devices
Wireless Access’ AccessMate forced a change to smaller and less-complex interactive two-way and one-and-a-half-way devices, and Motorola followed suit with the PageWriter 2000. These devices are more in tune with what customers expect a pager to look and feel like, unlike the big and bulky Tango. Initial reviews of both products have shown the PageWriter as more popular among users, with kudos given to its Qwerty keyboard.
These new devices are expected to entice more carriers to offer advanced services. And as more operators offer these services, existing vendors may make more of said devices and possibly entice other vendors to join in the game. The ensuing competition could lead to even smaller and cheaper devices, leading to more subscribers buying them and the carriers dropping rates and so on.
“1998 is the time to really be looking at,” said Karnad. “You’ll see other players coming in now. This is the real year where I see subscriber growth and revenue growth.”
A good kick
As stated, competition is the one factor expected to really kick start the market. Mtel said it is looking forward to this impending competition, saying that at this stage, competition will do more good in terms of raising awareness than it could possibly hinder.
“In the early stages of any new industry like this, there are tremendous opportunities for everybody,” said McKelvey. “Our biggest concern right now is awareness.”
And Mtel has little to worry about in the short-term. Even PageMart, the next expected two-way operator, doesn’t think it will mount a significant challenge to Mtel right away.
“I don’t think we would position this year as a necessarily watershed year for the paging industry in terms of technology evolution,” Stargardt said. “You’re going to see us with a nationwide network deployed but not the subscriber numbers at anywhere near Mtel. You won’t have enough carriers with enough networks deployed to really push Mtel until 1999.”
But if carriers do indeed launch service when they say they will, the overall awareness of two-way paging should increase.
“Two-way can move from being a novelty service to a mainstream product,” said John Zahurancik, North American telecom consultant with The Strategis Group. “Maybe it will be the year we talk about two-way realistically … It’ll be the year that two-way is something that’s a real product and not just something being tested.”
Also standing to benefit from the two-way buildout phase are infrastructure equipment providers, which are waiting for something to do. While
they have stayed somewhat busy upgrading current one-way networks to FLEX networks, the migration to two-way systems is expected
to revive their bottoming-out domestic revenues.
“We think the North American market is coming back strong largely due to two-way and ReFLEX 25,” said Jim Marion, president of Glenayre’s Wireless Messaging Group. “We see our North American business driven by ReFLEX 25 networks.”
The dark side
But not everything is looking rosy in the two-way future. These new operators will have the benefit of following the trail blazed by Mtel, but certainly will have their own issues to address.
“They will go through their own growing pains,” Zahurancik said. “It’ll be a year of learning and discovery for the operators … This will still be a developmental year in getting these other operators up and they’ll have their own fits and starts.”
The capital required to build the networks, combined with their technological complexity and unproven success may cause some players to remain hesitant, which is perhaps why the nation’s two largest paging operators, PageNet and Metrocall Communications Inc., are continuing to wait things out.
Although the company gained a nationwide NPCS license by acquiring ProNet Inc., Metrocall has stated it will not change its current strategy.
“Metrocall has stated its two-way strategy for two years,” said William Collins, Metrocall president and chief executive officer, in a conference call detailing the company’s fourth-quarter earnings. “Ours is a reseller strategy … It has proven to be the most viable strategy in our industry … We will not be on the bleeding edge of technology.”
PageNet, with more unused NPCS spectrum than anybody, also has no immediate intention of entering the two-way text messaging game either, perhaps still smarting from its VoiceNow rollout.
“We have a good and productive relationship with Mtel that we don’t intend to change,” said Mark Knickrehm, PageNet chief financial officer and senior vice president of strategic planning. “I think eventually everybody in the industry will have to get its own (two-way network) in terms of capacity and I believe you’ll see us building that capacity when needed.”
