The introduction of digital phone technology has changed dramatically the landscape of wireless communications across the globe and put the heat on the global paging industry.
Paging’s old advantages of small size and cheaper service are being whittled away, as digital phones shrink in size and cost, while carrying much of the same data capabilities as pagers.
“Cross-competitive impacts from digital cellular and PCS (personal communications services) systems became a significant factor in paging subscriber churn for the first time in 1998,” read a recent report by The Strategis Group, Washington. “There are indications that this negative force on the paging industry will survive the economic downturn in many countries and be a long-term drag on overall paging growth … It is reasonable to question the growth potential of the paging industry over the next few years.”
Yet while growth is indeed questionable in the short term, few believe the industry is facing extinction anytime soon. The Strategis Group, in the same report, said it expects growth rates to increase in the next two years, and predicts 258 million paging subscribers worldwide by 2003.
“The paging market is repositioning itself,” said Lee Ellison, senior vice president, paging sales and support at Glenayre Technologies Inc., a global paging infrastructure provider. “Traditional paging as we know it will be a continued part of the future, but continued growth will be in the area of advanced services.”
He said voice carriers use data capabilities to increase minutes of use and add differentiation, but voice remains their primary focus. This leaves room for paging carriers to compete by offering advanced messaging, telemetry and “off-the-hip” applications, a tactic analysts believe will allow the industry to survive into the next century.
How this global repositioning takes shapes depends on the region, as each has its own challenges and possible solutions.
Europe
Never a large paging market, Europe made a stand last year with a record 18-percent growth rate. But at the same time, European pager manufacturers have begun to exit the business. L.M. Ericsson closed its pager production operations, moving employees to its mobile phone development unit, and Philips recently sold its paging business to Belgian company Advantra. Philips said it intends to focus on its core strengths in GSM (Global System for Mobile communications) technology instead.
The problem faced in Europe is two-fold. First, the growth rates reported to date have come primarily from calling-party-pays promotions, in which the user pays a one-time charge for the service and callers pay for each transmission to the customer. While this resulted is skyrocketing subscriber additions, the down side was a great degree of churn, to the point where its actual growth rate is about half of what the numbers show.
As such, European operators are looking to migrate their existing base to greater revenue-producing services.
“I don’t know if Europe will reach the level of the China or U.S. market, but it can grow by positioning the product to add value,” Ellison said.
Zsolt Pakozdy, chairman of the ERMES MoU Association and chief executive officer of Easycall Hungary, said paging in Europe will not be the same in five years. He emphasized the need to promote paging’s broadcasting ability-to reach many people at the same time with a single transmission-for such uses as information services and advertising.
Another problem is the competition between the ERMES and FLEX standards. ERMES is the only standard that shares a common frequency for pan-European roaming, established by the European Telecommunications Standards Institute. But as of the end of 1998, only eight European ERMES networks capable of such roaming had been completed.
FLEX cannot compete in the roaming arena because it doesn’t have the common frequencies allocated to it across the continent as ERMES does. However, it has the advantages of speed and capacity. In the United Kingdom and Germany, FLEX has become the standard of choice. Which standard proves the most popular will depend on what is considered more important-speed and capacity, or pan-European roaming.
While FLEX protocols are expected to generate 80 percent of the total pager unit sales worldwide by 2003, according to The Strategis Group, ERMES will maintain a 41-percent market share of total unit sales in Europe.
Asia
George Hoffman, an analyst in the Yankee Group’s Tokyo office, said the pager market in Japan is plummeting. “Pagers are being replaced by cell phones with short-message capabilities,” he said. Other technologies, such as PHS (Personal Handyphone System), are adding to the problem.
The entry of PHS operators has reduced the price of entry to wireless and has forced cellular and paging operators to enact sharp price cuts. Paging operators, already working in a low-margin business, were hit the hardest.
Similar problems have been reported in Singapore, where new wireless customers are choosing phone service instead of paging, which once was the gateway to wireless voice service.
Three top executives at Hutchison Paging quit last year, reporting poor sales and disagreements over how to run the paging firm. The company’s chief operating officer, director of corporate planning and sales manager just walked out one night without notice.
Terry Wong, in The Strategis Group’s Singapore office, said much of these actions stem from the great amount of PCS spectrum awarded in these markets of late. Operators are jettisoning their paging operations to focus on the more competitive voice market.
She said the executive exodus at some paging companies reflect the perception that paging is a “sunset industry,” which she disputes. While paging-market saturation is expected to continue through 2000, The Strategis Group estimates paging subscribers in Singapore will total more than 1.8 million by 2002, a penetration rate of 54 percent.
Wong named two antidotes to the Asia-Pacific paging woes. First, he said the increasing adoption of high-speed FLEX networks eventually will allow the advanced messaging services needed to meet the above expectations.
“Subscribers on FLEX systems are projected to increase from 15 percent of total subscribers at the end of 1997 to almost 48 percent by 2002,” she said.
While Singapore’s penetration is among the highest in Asia, average revenue per unit is the lowest.
“However, the expanding subscriber base in Singapore will produce increasing aggregate service revenue from 1998 to 2002,” she said. “The Strategis Group projects annual paging service to grow from US$123.9 million in 1998 to US$161.5 million in 2002.”
Such hopes led to the first ever ReFLEX Technology Symposium ’98, held in both Beijing and Bangkok, Thailand. In a rather unprecedented show of cooperation, Glenayre and Motorola Inc. in December jointly organized the event-which drew representatives from more than 300 paging operators in eight Asian countries-to promote ReFLEX, impart technological updates, educate operators on how to best employ the technology and allow operators to share market findings.
The second antidote is consolidation, signs of which already are beginning to show.
The China News reported Taiwan Paging Network announced its intention to buy competitors Express Telecom and Ever Glory Telecom, as well as three mobile data service providers. Hongkong Telecom Mobile Services sold its paging business to CM Telecom, and in Australia, Telstra Corp.-the country’s largest telecom company-sold its paging business to Link Telecommunications.
“Overall, I think the entire Asia-Pacific market, probably with the exception of China-since the mobile market is still not liberalized-is facing industry consolidation,” Wong said. “Especially in markets with decl
ining or negative growth, operators see a need to spread network and operating costs over a larger base of customers. Fewe
r operators in a market will allow remaining paging service providers to realize economies of scale and greater operating efficiencies, facilitating lower pager equipment and service prices to end users. In general, industry consolidation will serve to lessen the negative impact of a declining subscriber base in a country.”
Latin America
With a 27-percent growth rate last year, Latin America is seen as having great potential. The region is important to North American paging operators because they wish to extend their networks across Latin American borders, as PageMart Wireless Inc. of the United States has done. The frequencies to allow such roaming have been allocated, or are expected to soon, across most of the region.
Their interest is two-fold. First, a pan-American roaming service would be a significant selling tool to U.S. business travelers. Also of note, Latin America is expected to become a large advanced messaging market. While alphanumeric service is a small percentage of the total current paging base in the United States, close to 90 percent of Latin American paging subscribers already have alphanumeric service, which generates much higher average revenue per unit.
Also expected to play a significant role is voice messaging, based on Motorola’s InFLEXion technology.
“Voice messaging has intriguing opportunities in Latin America from the operator perspective,” Ellison said. The large number of alphanumeric users in Latin American requires paging providers to employ an equally large number of operators for operator-assisted text messaging, an expensive system.
“InFLEXion is a way to reduce this overhead so users can relay messages directly to the party, without an operator interface,” Ellison said.
Ellison said he expects prepaid billing options to have a great effect on the Latin American paging market as well.
“We believe it’ll be a strong market,” he said. Payment options in the region are sometimes limited to cash-only and even weekly billing, due to the economic realities of the area.
“Prepaid lowers the risk to carriers,” Ellison said. “It reduces some of their exposure.” At the same time, prepaid frees consumers of the existing restrictive billing mechanisms.
