The supply contract between Research In Motion Ltd. and BellSouth Wireless Data L.P. ends next month and the two companies are already in negotiations to renew the deal.
The outcome of these talks is something anxiously awaited by wireless data industry watchers, who see it as a way to measure the success of BSWD’s Interactive Paging Service, which uses RIM’s Inter@ctive Pager 950. The IPS is the largest effort to date by a wireless data carrier to enter the consumer market.
Large, bulky devices and specialized applications have limited wireless data services to horizontal market uses. But many expected that to change when RIM introduced the Interactive Pager 950-a device the size of a traditional pager featuring a full Qwerty keyboard and capable of transmitting on packet-based data networks. Praise for the device was almost universal and packet-data carriers saw it as their doorway to lucrative mass-market appeal.
BSWD introduced the device to the public last September with the Interactive Paging Service, positioning it as a better two-way messaging option than what paging carriers were offering, touting the lower latency and higher speed of packet data networks over ReFLEX.
But sales of the service have not overwhelmed. While BSWD will not say how many Interactive Paging Service customers it has, analysts estimate only between 10,000 to 20,000 people use the service. Janet Boudris, vice president of marketing at BSWD, said more than 30,000 people are signed up for service.
But even if 50,000 are using the service, that’s still a far cry from achieving mass-market popularity, which is why some analysts doubt the BellSouth/RIM contract will be renewed. They believe BSWD’s low sales have resulted in a bulk of RIM pagers still in stock, meaning the company has plenty of pagers available to fulfill new orders and does not need to order more-which could prove problematic for RIM. BSWD is RIM’s biggest customer of Inter@ctive 950 devices. If the contract is not renewed, RIM’s earnings could suffer.
This leads analysts to ask where the problem lies. The wireless data industry has long said that a quality device and a quality network will result in mass market appeal. RIM has delivered what most feel is a compelling device. Besides its two-way messaging capabilities, the pager has various personal information management functions and is highly programmable. Some 400 application developers are working on software for the device today and rumor has it there’s even a bootleg version of the game Tetris in circulation.
With the device requirement met, some then question the worthiness of BSWD’s network.
“I hate to see RIM blamed for BellSouth’s problems,” said Rich Luhr, director of technology strategy at Herschel Shosteck & Associates Ltd. “No matter how you slice it, it’s not real successful. Their network has not performed in terms of sales. When you have real interesting devices and they’re not selling … hey-it’s the network!”
He said the problem is not Mobitex technology, which has proven popular in other countries, but rather BellSouth’s coverage.
“Their Web site says they cover 93 percent of the urban business population,” Luhr said. “That means you go to work downtown and it works. You go home and it doesn’t. They’ve got a coverage issue there.”
Luhr said BSWD’s coverage problem will affect the sales of all devices on the network aimed at mass-market consumers, which should concern RIM.
“If BellSouth has trouble, the hardware maker has trouble,” he said. “If I were RIM, I’d be as supportive as possible in public and in private push as hard as possible to get the network built out.”
BSWD’s Boudris responded by pointing out the company is in the third year of a network expansion effort that began when it first decided to take on the horizontal market focus.
“We understood we needed to commit to increase our coverage footprint,” she said. “We are doubling the number of base stations on our network and implementing new software technology that doubles the coverage of each base station.”
She said BSWD added 100 base stations last year, has added another 195 of the 300 it intends to add this year and expects to add 500 next year to reach a networkwide total of 2,500 base stations when complete.
“There is no one in this market space that has made this kind of commitment to build out this many base stations in this amount of time,” she said.
For its part, RIM remains steadfast in its support of BSWD.
“The thing we stress about RIM products are the advantages of the networks we work with,” said Dave Werezak, RIM’s vice president of marketing. “We’re very interested in the [Interactive Paging Service] being successful. We’ve been partnering with [BSWD] for years to make that happen. They are a very important customer for us.”
Mark Guibert, marketing manager at RIM, said BSWD and RIM will always have a supply agreement of some kind and dismissed speculation over the contract renewal.
“I don’t think the focus is so much contractual,” he said. “We have an ongoing relationship with BellSouth and are hoping to continue shipping more pagers to them. Focusing on a specific contract is not a relevant focus. Financial analysts do it for their forecasting, but it’s not important.”
Both Guibert and Werezak said although BSWD is the company’s largest customer, RIM will move forward with efforts to add other distribution channels and further diversify its customer base. Analysts believe this will protect RIM should BSWD’s efforts fall short.
RIM is fostering new lines of distribution for all Inter@ctive models, both the 950 as well as the recently introduced 850, used with the eLink service on American Mobile Satellite Corp.’s Ardis network and SkyTel’s ReFLEX 50 two-way paging network.
RIM also distributes the 950 through Microsoft Corp. dealers with its BlackBerry e-mail extension service, which uses BSWD’s network but is not part of the Interactive Paging Service. Additionally, several stock brokerages like Fidelity Investments have incorporated the device and BSWD’s network with their online trading services to allow for wireless stock alerts and trading.
“This is not about one company’s effort to build a market,” Werezak said. “BellSouth is our largest customer and the one everyone asks about, but BellSouth is not going to do it alone.”
BSWD’s Boudris agrees. She said the company’s Interactive Paging Service sales to date are in line with what could be expected from a company with a small direct-side sales channel.
“We’re very pleased with our sales results, given our distribution has been limited to BSWD’s direct sales force so far,” she said. BSWD has a sales force of a few hundred, who for years have sold to specialized vertical market users.
Rather than re-educating and building a larger sales force, Boudris said the company plans to make distribution agreements with companies boasting larger sales forces accustomed to targeting the mass market.
“I think we were very up front when we launched that we would be seeking partners who have distribution channels in place,” she said. “Our core competencies are on the technical and network end, not the sales end … Our intent is to focus on providing the network, coverage, the back-end system and encouraging awareness.”
Along that line, BellSouth Cellular began selling the service last month. In March, BSWD formed a network integration and distribution agreement with Paging Network Inc., which boasts a sales force of thousands selling to an installed customer base of 9.6 million. Since the announcement, the two carriers have been working on the technical issues of integrating their networks, but Boudris said she expects PageNet to begin actively selling the IPS soon.
She noted other distribution agreements will be announced shortly. “The distribution is just starting to ramp up for us and that’s the key to real substantial growth. We see RIM as a long-term strategic par
tner. You will see us having a long-term relationship with them.”
