Paging is at a crossroads. Consolidation, financial turmoil and generally depressed valuations have surrounded the paging industry worldwide for the last two years. Increased functionality and pricing competition from cellular and PCS providers have brought into question the future of paging. Many paging companies have been slow to react to the changing competitive environment and today stand at a critical juncture in developing their businesses.
No where in the world is this situation more evident than in Latin America. The Latin American paging market is characterized by low penetration rates (generally less than 1 percent) and a large percentage of alphanumeric customers (approximately 90 percent of the total subscriber base in Latin America). Historically in the region, paging was positioned as a cheap replacement for a cellular telephone. And until recently, this was a valid value proposition for paging subscribers.
However, as a result of deregulation and increased competition in all major Latin American telecommunications markets, the value of a cheap replacement for a cellular telephone is in question. Numerous family-owned-and-operated paging companies throughout the region are struggling to maintain their subscriber base as cellular and PCS providers decrease prices and increase functionality. Even experienced international paging companies have struggled to create a value proposition for paging in Latin America.
This clearly begs the question: Is there a value proposition for paging in Latin America?
As mentioned before, historically the value proposition was centered around price. Today, price is important, but does not ensure success. For example, during 1998, the price of alphanumeric paging in Lima, Peru, was approximately one-tenth the price of cellular telephone service. However, the number of paging subscribers in Lima, Peru, did not increase during 1998, and in fact, slightly decreased.
The important issue paging companies face today is how to create value for current and future customers with a one-way paging infrastructure. Some companies are creating value by providing information services to specific market segments. Other companies are combining operations to try to achieve economies of scale. And still others are exiting the business altogether.
Consensus within the Latin American paging industry is that a one-way paging infrastructure is not sufficient to compete in today’s telecommunications market.
Many paging companies are analyzing the economics of upgrading their one-way paging infrastructure to a two-way paging or messaging system. Manufacturers have been quick to seize this opportunity and are pushing companies to evolve from paging companies to messaging or narrowband PCS providers. However, what remains to be seen is how yesterday’s one-way paging companies will make a successful business case for their new narrowband PCS networks.
There are fundamental differences between a narrowband PCS system and a one-way paging system. These differences range from the design and operation of the network to the commercialization of the services. Therefore, companies planning on providing narrowband PCS must plan carefully to commercially launch these services. Existing paging companies will need to implement structural changes within the technical and commercial departments of their organizations to ensure the success of narrowband PCS. These changes will not be easy. However, the rewards will be substantial for those that are successful at changing the way messaging is positioned in Latin America.
The pre-eminent concern for the Latin American messaging industry is to expand the overall size of the market, as well as to create a value proposition that will open new market segments. The introduction of narrowband PCS will allow carriers to provide services designed to bring in more revenue and will likely stimulate the growth of both one-way and two-way messaging services. The Internet and e-mail, combined with an increasingly mobile society, will provide a cornerstone for the growth of the messaging industry. The Latin American messaging industry must focus on its long-term sustainability, which depends on generating market growth by providing solutions and real value to its customers.
Kris Brigham is chairman of the Latin American Messaging Association and chief financial officer for Arch Latin America.
