While Nextel Communications Inc. remains the darling of the wireless industry these days, other specialized mobile radio operators are beginning to build successful businesses on plain old two-way dispatch voice service.
“There are people that don’t need the bells and whistles and want a very small mark-up on their service,” said Albert Koeningsberg, head of the SMR Advisory Group, a 220 MHz operator in Fort Lauderdale, Fla. “We’re going to see a growing need for economic two-way dispatch radio. Because of the basic economics of today’s environment, businesses will begin needing lower-cost service because profits are coming down.”
Steve Virostek, senior consultant with the Strategis Group in Washington, D.C., believes strong demand will continue for economical two-way dispatch service charged at a flat rate. Nationwide 220 MHz licensee Roamer One, SMR Advisory Group and 800 MHz analog provider Chadmoore Wireless Group Inc. have seen their systems grow at fast rates, said Virostek.
Nationwide operator Nextel today offers a service that integrates a digital phone, alphanumeric pager and two-way radio based on Motorola Inc.’s integrated Digital Enhanced Network technology. Other SMR operators say many customers don’t want to pay the $70-plus charge for the service.
Chadmoore, using raw 800 MHz spectrum, is building out a nationwide analog SMR system. Starting the year out with 8,000 customers, the operator today has more than 21,000 customers. Commercial service now is available in 71 markets, where Chadmoore charges a flat rate of between $15 and $20 per unit per month.
“We want to remain analog,” said Jan Zwaik, chief operating officer of Chadmoore. “Our vision is to provide cost-effective service … Our focus group is the small-to-medium user, but we’ve gotten quite a few of the larger users who want low-cost communications. There are a significant number of national providers that don’t want the digital alternative.”
Chadmoore’s strategy is to enter markets where Nextel is actively converting its existing analog base to digital service.
“We get those customers that want an alternative. We time our entrance into a market for that desire, when Nextel sends out those letters telling customers they must convert to digital,” said Zwaik.
Basic two-way voice dispatch service has yet to catch the eye of many investors, say analysts and SMR providers. It lacks the sexiness other wireless investment opportunities have, they say.
Chadmoore’s stock is said to be undervalued on the public market. But Virostek said SMR players in the right markets can break even in the third or fourth year of operation, and a mature SMR operator can make up to 50 percent in margins. Using analog equipment also results in low capital costs for operators, he said.
“There’s quite a bit of used (analog) equipment that Nextel has taken down” in converting to digital systems, noted Virostek.
Zwaik says investors continually focus on the 2.5 million public SMR customers around the country. But as many as 20 million private users have the potential to become public customers, he said.
“All these private operators that bought their systems 20, 10 or five years ago are running out of capacity, their terminal end-user equipment is aging and the cost to operate it is high … We are having good luck talking to cities, towns and counties that have private systems and don’t want them anymore.”
Koeningsberg believes that following the 220 MHz auction, investors will have strong interest in 220 MHz providers. So far, this area has not appealed to investment banks because of the many regulatory hurdles this industry has faced in past years, he said.
“It’s easier to get a return on your investment in 220 MHz vs. digital SMR in 800 MHz because the area of propagation in 220 is superior and the infrastructure costs are significantly lower,” he said.
