“Advanced messaging services.”
It’s the catch phrase for the wireless messaging industry today, with most major companies betting everything that services like wireless e-mail access, Internet information and two-way paging will catch on with both consumers and businesses-and will compensate for the radical decrease in the number of one-way paging subscribers.
Some companies are relatively new to the messaging game, such as Motient Corp. and Research In Motion Ltd., and are working to sell fresh services to new customers in an effort to become better known. Others-like Arch Wireless Inc., WebLink Wireless Inc. and Metrocall Inc.-are veteran paging companies that are now struggling to trade in their stodgy paging carrier image in favor of the more fashionable and more profitable advanced messaging carrier label.
And, more importantly, these old paging carriers are trying to entice enough new and existing subscribers to their advanced messaging services in order to offset their rapidly declining one-way subscriber base.
“One-way paging is going to be a dying industry, just as the telex was taken out by the fax machine and the fax machine is in the midst of being taken out by e-mail,” said Michael Gill, executive vice president and director of research with Tejas Securities Group Inc.
“We continue to see that (one-way paging) falling quite a bit,” said Elliot Hamilton, senior vice president and director of global wireless at the Strategis Group. “That’s not a future that anyone wants to be part of.”
And while most in the messaging industry understand that the era of one-way paging has come and gone, many didn’t anticipate just how fast it would go.
“It’s stunning how quickly it’s come down,” Gill said.
In just the past three months, Arch lost almost 1 million one-way subscribers. The company, which recently added millions of customers through its acquisition of Paging Network Inc., ended the quarter with a total of about 11 million subscribers-significantly less than a combined PageNet-Arch would have posted a few years ago. WebLink showed a similar decline in traditional paging subscribers with a loss of 250,856. Likewise, Metrocall showed one-way paging losses and, in documents filed with the Securities and Exchange Commission, warned that the decline in traditional paging would continue. The effects of this decline are hardest on the carriers, but others, including infrastructure providers, are also feeling the sting. Glenayre Technologies Inc. just last week announced it will completely shut down its wireless messaging infrastructure business, a move that will cost it up to $250 million.
The one-way paging industry “could lose as much as 10 to 15 percent of the subscriber base this year alone,” Gill said, adding that the decrease could soar to as high as 10 million customers by year’s end. The drop is huge for any industry, much less one built on such shaky ground as the wireless messaging industry.
According to the Strategis Group’s “State of the U.S. Paging and Advanced Messaging Industry 2001” report, one-way paging subscribers will continue to fall off during the coming years, eventually settling at about 10 million customers. Compared with today’s subscriber base, which totals almost 40 million, that’s a pretty sharp drop.
“The industry pretty much peaked in terms of subscribers in 1999 at about 45 million,” Gill said. “It contracted last year to somewhere around 42 million, and this year-in 2001-it will contract again.”
Adding more advanced messaging subscribers is extremely important for these flagging carriers. In most cases, the monthly revenue earned from each two-way messaging subscriber is double or triple that of the revenue from one-way subscribers. Seasoned messaging companies are working to gain enough two-way subscribers to compensate for the exodus of their one-way customers.
But the conversion isn’t easy.
“Their one-way operations can in a sense be a cash cow if they choose to grow their two-way operations, if they can make that quick enough-but they have to do that transition pretty quick,” Hamilton said. “Somehow they really have to get their one-way subscribers pushed to their two-way networks. So it’s a tough balancing act for them to somehow continue their one-way operation without putting much effort into it.”
“I don’t think that there’s a doubt in anyone’s mind that two-way will find a measure of success,” Gill said. “The bigger question comes down to the health of these companies: Will that success justify the amount spent on building out these two-way networks?”
WebLink spent more than a half-billion dollars creating its advanced messaging network. Arch is paying for an upgrade to its ReFLEX network the company said will significantly improve its performance. And while these companies say the upgrades are necessary, the toll they are taking is substantial.
“It shows you that technology has been problematic for this industry,” Gill said.
Due to diminutive stock prices, all three companies have been delisted from the Nasdaq National Market. Arch, WebLink and Metrocall also have reported flagging revenues, tight economic conditions and are saddled with significant debt-Metrocall’s debt alone weighs in at almost four-fifths of a billion dollars.
The situation is so grim that WebLink last week filed for Chapter 11 bankruptcy, just a few weeks after a failed plan to merge with Metrocall under concurrent bankruptcy filings.
Arch, on the other hand, seems to be doing slightly better.
Last week the company announced a series of complicated business transactions to sharply reduce its debt, cut down on its interest payments and defer some scheduled payments. Arch executives praised the moves as a way to sustain long-term growth.
Newer players in the game also seem to be doing better, although their exact situation is unclear because their financials are tied up with those of their parent companies.
Cingular Interactive working on the Mobitex network is chugging along with the backing of its parent company, as is SkyTel Communications Inc. with the backing of WorldCom Inc. and Verizon Wireless Messaging Services with the backing of Verizon Communications Inc.
However, Motient-which is without a parent company-is facing serious financial concerns and recently announced a merger with Rare Medium Group to score some needed cash.
And while all of today’s messaging companies boast of their two-way networks and subscribers, one-way paging still accounts for the lion’s share of the current messaging industry. Most messaging companies, including Metrocall, WebLink and Arch, admit that their one-way paging revenues account for more than 90 percent of their business. And, according to the Strategis Group’s report, 96 percent of the 38.7 million messaging subscribers today use one-way pagers.
But all of today’s carriers know that they can’t rely on one-way services to stay afloat-the remains of too many former messaging companies litter the road for them not to recognize the situation.
TSR Wireless, which was the nation’s fourth-largest paging carrier, quietly closed its doors in December and filed for Chapter 7 bankruptcy. Its assets were liquidated in an auction last month. PageNet and MobileMedia Corp. are also proof that not all messaging companies will survive.
So today’s carriers place their faith on advanced messaging. The situation is almost ironic: Wireless data and the mobile Internet are the hot topics in the wireless industry today, but most of the companies operating data-centric networks are facing crucial battles to stay afloat.
Two-way paging and advanced messaging is the way of the future, everyone in the industry agrees. According to the Strategis Group’s report, the number of advanced messaging subscribers will eventually overtake the decline in the number of one-way customers. The total number of advanced messaging subscribers will hit 30 million by 2007, according to report projecti
ons.
“We definitely see a big growth in two-way subscribers, over whatever network it may be,” Hamilton said.
It just won’t be a smooth journey to get there.
“We still see a lot of consolidation that has to go on,” Hamilton said. “One way or the other, they’re going to have to consolidate or they’ll go bankrupt and their assets will be combined.”
“There will be just one or two major companies left standing when it’s all said and done,” Gill said.
“It’s a very rough situation and there’s probably not going to be a lot of bright spots on the horizon,” Hamilton said.
“It’s kind of up to the players to somehow appease their bondholders and shareholders and everything else and say, `Hey, this is the best deal that we could do,’ or otherwise six months from now there’s not going to be anything left.”
