Paging Network Inc. last week disclosed a plan to dramatically restructure its U.S. operations, the most notable aspect of which includes a 30-percent reduction in work force during the next nine to 15 months.
This reduction will affect about 1,800 employees in positions such as customer service, billing and accounting, order fulfillment, inventory management and some technical operations. PageNet said it intends to strip its regional operations of these responsibilities and instead have these functions performed on a national basis in what it calls Centers of Excellence.
There will be about five such centers, each focusing on a different area of business. For instance, there will be one national Center of Excellence handling all of the company’s customer service, one for billing and accounting, one for inventory management, and so on. PageNet’s regional operations will continue to focus on sales and marketing.
According to Mark Knickrehm, PageNet’s recently hired chief financial officer, this will allow for better training and easier technological upgrades, which are more difficult to do region by region.
“We now have call centers with solid staff but not the automation to bring them the information they need. We can’t deliver that technology to 50 locations across the country,” he said.
In addition to his financial duties, Knickrehm will take on the company’s strategic planning responsibilities and also will be in charge of human resources, legal affairs and technical and operational planning.
Knickrehm expects about half of the 30-percent reduction to come from natural attrition. He said the turnover rate for many of the positions slated to be eliminated is between 25 percent to 50 percent because they are entry-level, low-skill positions. PageNet plans to use temporary workers to fill the positions until the positions are eliminated. For those employees who choose to stay on until the positions are either moved or terminated, Knickrehm said PageNet will assist them with a severance package, out-placement and job counseling.
This “realignment,” as the company calls it, will force the company to record a charge of about $65 million to $80 million in the first quarter, mostly due to costs incurred from replacing current information systems, moving offices and funding severance packages.
However, PageNet said the realignment is expected to create recurring performance improvements and cost savings of $45 million to $55 million and another $75 million increase in incremental annual revenue once the process is complete.
As part of this realignment, Michael DiMarco, formerly senior vice president of operations, was appointed executive vice president of sales. Edward Mullinix Jr., recently hired as senior vice president of strategic planning, will assume the role of executive vice president of operations.
DiMarco will lead the effort to expand the company’s sales force, while Mullinix will guide the creation and operation of the new Centers of Excellence.
“While it has required a number of difficult decisions and will ultimately affect the jobs of many of our associates, it is a solid, forward-looking plan that will help us to reach our goals as an organization,” said John Frazee Jr., PageNet chairman, president and chief executive officer. “The realignment creates a flexible, efficient organization for launching and supporting our new strategy.”
This strategy to transform PageNet from a paging company to what Frazee calls a “wireless information provider.” This evolution cannot occur, said PageNet executives, until the company can lighten its load and more easily move to a new business platform.
“We have a company now that can’t evolve the way we want the company to evolve,” said Scott Baradell, director of corporate communications for PageNet. “We’re not as nimble as an organization as we want to be.”
Initial media reports of the layoff plan suggested the company was financially wounded by competition from personal communications services digital phones and was cutting costs to stay afloat. Baradell unctuously dismissed this assumption.
“The primary point of the realignment is to create a better organization, not to cut costs,” he said. “I think the financial media is not catching on here. When you talk about PCS and paging … they’re playing basketball and we’re playing baseball,” he said, quoting a favorite saying of his boss, Frazee.
This plan is a significant turning point for the nation’s largest paging carrier. In essence, all of PageNet’s customer acquisition and network buildout has been a precursor to this point. Frazee himself defined PageNet as a start-up company with billion-dollar revenues. Baradell perhaps summed up the strategy best.
“PageNet’s 10 million customers and resources are a platform for delivering all sorts of information content,” he said, comparing PageNet to a cable TV company. “We have 10 million set-top boxes providing basic cable and now we’re in a position to offer HBO and other premium services.”
Frazee said he hopes to use paging technology to deliver more than a “cheap beep,” but also to deliver various types of information. The company already provides information services from news outlets like CNN, as well as sports outlets and financial services, and is working to secure similar agreements in the future. Frazee also has considered allowing marketers access to its customer base so it could page subscribers to advertise services and promotions, sort of like direct mail.
“We have barely scratched the surface of our ability to offer customized, value-added information services to our customers,” Frazee said. “These information services will span the worlds of business and finance; government and education; sports and entertainment; information oriented to consumers and to individual corporations; and other targeted, branded applications that will be marketed and distributed by PageNet and transmitted over our wireless network.”
PageNet executives expect this new business tack to help the company grow well beyond its current level, an ironic prediction after announcing 1,800 layoffs.
“I think it’s a significant change but ultimately a highly valuable one to those who are here and expect to grow the company to as big a size or bigger,” Knickrehm said. “Most of the growth in staff for the future will come in the sales force. I anticipate this company will be a lot bigger.”
Wall Street apparently bought the story, as PageNet stock hovered at more than $14 following the announcement, capping a month-long climb that began at $9.70.
Industry analysts have expressed cautious optimism.
“One of the things that they’re doing that’s exciting is taking a lot of proactive steps to stay ahead of the curve,” said John Zahurancik, North American telecom consultant for The Strategis Group. “This is a step PageNet is taking before things go bad.”
He said PageNet’s core business of 10 million customers is generating a large amount of cash flow and to take steps now to do something with that base is a smart move.
“They’re in transition from a high-growth phase to the expectation of very large revenue performance,” he said. But the move is not without its risks.
“You have to take an organization that to its roots has gone in one direction (fast subscriber growth based on cheap service) and now try to convert that to a company that can sell more services,” he said. “This is a different mentality for them and will take some effort to enforce internally within the company.”
And with PageNet founder and “guiding light” George Perrin now gone, Zahurancik said he’s interested to see how the corporate culture handles this change.
“Anytime you lose 30 percent of your work force, you’ve got to worry about morale. Big changes like this can really shake up a company. That transition can be brutal.”
