YOU ARE AT:Archived ArticlesPRICE IS IMPORTANT FACTOR, BUT DOESN'T ALWAYS DETERMINE VALUE

PRICE IS IMPORTANT FACTOR, BUT DOESN’T ALWAYS DETERMINE VALUE

Price is an important element of competition for paging carriers, but most industry insiders say features, quality of service and how a service meets a customer’s specific needs determine value.

The retail price for numeric service has dropped in many markets, but the reductions are happening primarily among resellers, according to carriers. In fact, many carriers are concentrated on increasing revenue per unit.

“Price competition normally comes in lack of training and lack of differentiation,” stated John Stupka, president and CEO of Mobile Telecommunication Technologies Corp. “If people just bought on price you’d be looking out the window at a sea of Yugos.”

“Carriers have priced airtime services in such a way that has been reflective of the price elasticity of demand model to create strong, robust growth for the industry,” said Ed Baker, president, CEO and chairman of Arch Communications Group Inc.

“I don’t see and evidence of (carriers) lowering their prices,” added Baker.

PageMart Wireless Inc.’s “average revenue per unit has been in the $8 range the last few years,” said company President and Chief Executive Officer John Beletic. “We’ve never had a price decrease. We’ve even had a price increase.”

Carriers can increase RPU by charging more for value-added services or technology upgrades. On the network end, carriers have gained spectrum efficiencies, namely through Motorola Inc.’s FLEX family protocols, which allow more users to run in a given bandwidth.

“Capacity provides the opportunity to offer new services and lift the price,” noted Larry Conlee, general manager of Motorola Inc.’s advanced messaging systems division. The importance of price depends on the market segment attracted to the service, added Conlee. “Young people are interested in paging. Price is an important measure for them.” However, “others are more interested in information, and will pay more.”

“Most of the people who do business with us, if they ask if SkyTel is the low-cost option, the answer is `no’ but we’re the best value,” added Stupka.

“Is there a (price) floor out there? Yes,” said Conlee. “It is technology-based.” For instance, SkyTel is selling its new SkyWord Plus alphanumeric service-which offers guaranteed message delivery-at $25 per month. This compares to $60 per month for the company’s current SkyWord alpha service. The dramatic price decrease is possible in part due to network efficiency. SkyWord Plus runs on a ReFLEX two-way channel-which provides the return path for network acknowledgement of message delivery-so SkyTel sends pages to a select group of transmitters in the user’s vicinity, rather than broadcasting pages nationwide.

Paging Network Inc. prices service from $15 to $20 for nationwide numeric, $30 to $40 for nationwide alphanumeric and $10 to $22 for local VoiceNow voice paging-per month and including lease of a pager-said Jenny Haynes, vice president of investor and public relations. She noted that VoiceNow’s current rates are experimental.

Considering PageNet has more than 9 million users-twice as many as the second largest carrier-what effect has this had on the company and the industry?

PageMart’s Beletic commented that “the industry tends to match the prices of the industry leader.” He added that PageNet’s pricing “has hurt (PageNet) in reduced profitability.”

“You can’t have low prices if you don’t have good quality,” stated Haynes. “Everybody has an impact on pricing. It is a very competitive business and has been for years,” she added.

“PageNet is far more centered on the local and regional and the numeric than we are,” said Stupka. “SkyTel is focused on the high end of the business.”

While PageNet offers low prices and has a massive customer base, SkyTel is less focused on subscriber volume and charges a higher rate. “The industry average revenue per unit is $7,” said Stupka. “SkyTel is in the $25 range.”

Stupka did say the industry “has become very `hyper-competitive’ on price … to the extent large carriers are not making the money investors expect. This will have to resolve itself.

“In terms of VoiceNow, I think PageNet is doing what they have to do to justify a very large investment in their network. They need to generate the right pricing to generate demand. I do think the technology is very promising,” added Stupka.

“I don’t think that any carrier in the industry has priced its airtime services to its own customers in a way that’s been negative to the industry,” said Baker.

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