As the nation’s largest messaging carriers suffer through a potentially disastrous economic decline, smaller carriers-those that only cover a few states-are also feeling the effects of the flagging industry. However, while many are losing their businesses to bankruptcy and consolidation, others seem to be weathering through the storm nicely, and a small few are even preparing to expand their operations.
Network Services L.L.C., a regional paging carrier with services in Arizona, Nevada and California, recently paid $6 million to gain the one-way paging assets of bankrupt TSR Wireless L.L.C. The company’s subscriber base grew from several hundred thousand to about 2 million.
Brad Scott, the company’s president, said Network Services had been pining for some way to expand its services nationally. The TSR Wireless bankruptcy just happened to create that opportunity, and for a fraction of what it would have cost the company to expand on its own.
“We were able to do it with a much lower cost,” Scott said. “It would have cost us many, many more times” the $6 million price tag.
Network Service’s move is surprising because the one-way paging industry has entered an extremely sharp decline in recent months. The nation’s largest paging carriers have been losing thousands and thousands of one-way customers every month.
And although Scott said Network Services is ready to take advantage of its new network using its unified messaging products, some other regional paging players don’t seem to be doing as well.
Aquis Communications Group Inc. is a regional paging carrier that provides one-way paging services in 16 states, primarily in the Northeast. It also resells a nationwide network and offers other messaging services. Aquis stands out among the dozens of other regional carriers in that it is publicly traded. Its stock, traded on an over-the-counter electronic quoting system, brings in about 50 cents per share.
In its first-quarter report, Aquis showed that it is following the same downward spiral that has caught a variety of other paging carriers, including WebLink Wireless Inc. and Metrocall Inc. Aquis suffered losses of about $2.5 million in the first quarter, and defaulted on its agreements with its senior lender. Even worse, the company lost almost 100,000 subscribers during the past year, clocking in at 345,000 on March 31.
In order to combat its slowing business, Aquis said it reduced its staff and salary levels and plans to engage in new marketing strategies. Those strategies involve a different tactic-Aquis will “exploit the marketing opportunities in one-way paging resulting from the refocusing of many of our paging industry competitors on two-way and other advanced services,” the company said in documents filed with the Securities and Exchange Commission.
These moves, however, may not be enough, Aquis warned.
“The conditions … indicate that Aquis may not be able to continue as a going concern,” the company said in its documents. “We would consider appropriate responses, including the filing of a request for protection under the U.S. Bankruptcy Code.”
Another regional paging player, Teletouch Communications Inc., covers non-metropolitan areas in the Southeast. Like Aquis, Teletouch is a publicly traded company and, like Aquis, it is losing one-way paging subscribers. The company’s customer base totaled 379,500 at the end of February. Teletouch said it is creating customer retention programs and expanding product lines in an effort to attract and retain customers, but “there is no guarantee that our future efforts in this area will improve growth and retention,” the company said in documents filed with the SEC.
Unlike Aquis, Teletouch is expanding into other wireless products and services and now offers prepaid cellular services, prepaid long-distance cards and two-way paging services through WebLink’s network. The services are bringing in more money, Teletouch said, but the company’s net revenues are being dragged down by the decline in its one-way paging business.
While Teletouch is relying on various types of messaging services besides one-way paging, MessageLink Inc. is taking a slightly different approach. The company used to operate a paging network but sold it off to concentrate on its reselling business. Don Buzzelli, the company’s founder, said the business model is solid and MessageLink is currently looking for more resellers to acquire.
“There is no reason for us not to take advantage of that (one-way paging) subscriber base,” Buzzelli said. “I’m certainly a firm believer in one-way.”
Buzzelli said he believes there will still be a large market for one-way paging years from now, and-contrary to popular opinion-he does not believe two-way paging will be as big as most in the industry hope it will.
“I do believe that sometime two-way is going to make a dominant place in the market, but it’s not going to be in the next 24 months,” he said.
Buzzelli said the majority of the nation’s regional carriers are suffering the same fate as the struggling nationwide carriers. He said they’ll have to do something creative to continue operating.
“The regional guys certainly aren’t any more successful than the major players,” he said. “They don’t have a large enough population there to continue to build their base. So if I was a regional guy, I would start looking for somewhere else for business. I don’t know how they do it.”
However, Network Services’ Scott said he thinks the regional paging carrier situation isn’t as desperate as some might think.
“It appears as though the regional players are the ones that have continued to do fairly well, as opposed to the national players that seem to be having a little bit more difficulty,” Scott said. “A lot of that may just simply have to do with the fact that the regional players are typically still owner-operated and tend to watch their balance sheet more closely, [and] didn’t take on the heavy debt loads back over the last five, ten years, which I think is coming back to haunt most of these larger national players.”
But while things may be okay now, they won’t stay that way, Scott said.
“I certainly think that the regional players are going to have to expand their offerings,” he said. “If they haven’t already, they’re going to have the need to offer something beyond one-way paging. In some cases that will be two-way, although with the capacity capabilities with two-way networks out there and the cost of building them, you won’t find the regional players building out their own networks. I think you’ll find them striking interconnect agreements with the two-way carriers that have built out.”
And one major selling point regional carriers can use as a trump card is their small size, Scott said.
“The regional players have niche markets and they understand those markets,” he said.
