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PAGING’S STOCK PLUNGE IS CAUSED BY FINANCING, FLEX AND A FEW FAILURES

The paging sector’s stock plunge this year is mostly a result of the large amount of money raised by “marginal players” in 1995, unexpected negative consequences of Motorola Inc.’s FLEX technology and the delays and failures of two-way messaging systems, according to a report by Prudential Securities.

But the firm said it expects some of these issues will either lessen or be resolved next year.

The rise of broadband personal communications services is not a major contributing factor to the industry’s troubles, states Prudential. PCS has had a slight affect on paging among low-end users, but “paging interfaces of the PCS systems have proven clumsy, and the system performance has been unreliable compared with existing one-way systems,” the company noted.

The New York firm specified the “capacity-induced price wars and higher upfront capital spending” of FLEX technology has negatively impacted the industry. “Most of the independent public paging companies are reliant on bank credit to fund growth, and this credit appears to be getting tighter,” says the Prudential report.

Further, “funding through equity and high-yield avenues is a non-starter, so much so that references to the savings and loan crisis may come to mind.” The current state of credit may lead to more consolidation.

About half of the carriers Prudential identified as industry leaders showed decreases in internal net additions in the third quarter, when compared with second quarter net additions.

Prudential noted the gap between Paging Network Inc., which has 22 percent market share, and other operators is widening. Arch Communications Group Inc. is keeping up, though it has taken longer and been more expensive than originally expected to integrate Westlink Paging Inc. into the company.

Prudential noted Arch “is the only pure-play paging carrier whose growth has increased sequentially from the second quarter.”

PageMart Inc.’s focus on retail has paid off, reported Prudential. For the third quarter, the company ranked behind PageNet and Arch, respectively, with 160,000 net additions.

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