NEW YORK-To get a sense of where the narrowband personal communications services industry is headed in the United States, picture this:
The presidents of American Paging Inc., Arch Communications Group, Metrocall Inc. and Conxus seated on the dais for a panel discussion Oct. 14 at a “Wireless Telecom Values and Finance” conference by Kagan Seminars Inc., Carmel, Calif.
Bracketing them to the left were Sharon Armbrust, senior analyst, and Richelle Elberg, analyst, for Paul Kagan Associates Inc. To the right, Jeanine Oburchay, associate director of Bear Stearns & Co. Inc., New York.
At the close of their presentations, Armbrust asked for questions from the audience, comprised primarily of representatives from financial institutions. As is sometimes the case, those asked to ask a question at a public forum make a statement instead.
“Next year, there should be three companies on this panel, AirTouch, which has acquired MobileMedia and American Paging, Metro-Arch and PageNet,” said one audience member.
Oburchay responded that she has her own set of suitors and pairs in mind. Although she did not identify them, her response confirmed the consensus of those who spoke that further industry consolidation is likely in the domestic messaging industry within the next six months to two years.
“There will be more consolidation in the next 18 months, either for the purpose of delivering services or [involving] companies like Mtel and Conxus that have built out their technology but are looking for distribution,” she said.
One of the key drivers of the trend will be the lack of available capital to build out all of the eight nationwide narrowband PCS licenses, said C. Edward Baker, president of Arch.
“Maybe Terry will conclude he should be a value-added reseller, who can drive value to the market,” Baker said, referring to Terry Sullivan, president of American Paging.
“My challenge is to leverage the one-way network I have to build a two-way network for programmable devices that allow product differentiation from competitors,” Sullivan said. “I don’t believe we can compete against Arch, Metrocall or PageNet in one-way, which is a commodity. We fought that battle and lost. For us, it is a struggle over whether we should be a manufacturer, a distributor or a manufacturer and a distributor, and that will depend on the market.”
Conxus, jointly owned by Arch and Metrocall, is a carrier’s carrier inviting all qualified comers to resell on its network, said William deKay, company president. It has three times the spectrum capacity of Mobile Telecommunication Technologies Corp. With $400 million in Federal Communications Commission loans and vendor and bank financing, it expects to complete by mid-1998 a network covering 90 million people in the nation’s major population centers.
“The industry has been to hell and come part of the way back, but leverage is still high and a lot of the consolidation occurred at high prices,” Elberg said.
Armbrust termed the merger of Metrocall and ProNet, “a healthy start,” that has-when coupled with other developments like more realistic pricing of services and reseller agreements-begun to change investor attitudes toward the messaging sector.
Sullivan, however, said the current talk about price stabilization and even price increases for services in a consolidating industry hasn’t yet turned into action in American Paging’s experience. “I’m seeing larger competitors continue to be very aggressive, especially in one-way,” he said.
Some of the predatory pricing for services, which Wall Street rewarded in the past when subscriber additions were its primary evaluation criteria, likely was driven by another motive, Baker said. It was a deliberate attempt on the part of some companies to consolidate industry ownership by driving less capitalized players out of the industry altogether. “It was an unhealthy way to do it,” he said.
