With the lifespan of paging devices getting ever shorter, and with new advanced paging devices flooding the marketplace, paging carriers must be extra careful in their purchasing patterns.
Kevin Reynolds, president and founder of PCS Maze Inc.-a wireless industry consulting service based in Texas-said the expected migration toward advanced guaranteed messaging and interactive two-way services poses significant economic risks to carriers in terms of inventory management.
The root of the problem is that the device side has become a four-dimensional model, from a two-dimensional model. The old days of buying a bulk of numeric and/or alphanumeric devices is over, he said. Carriers today have to determine how many numeric, one-way alphanumeric, 1.5-way guaranteed receipt alphanumeric and full interactive two-way alphanumeric devices to buy.
Purchasing advanced pagers in volume, despite the discount, could backfire, Reynolds explained. ReFLEX-based pagers are expensive and manufacturers are coming out with new versions about every nine months, he said.
The current consolidation craze can add to the problem. Larger companies command greater purchasing power, which means they can buy in greater volume at lower prices, which they often do. But this is precisely what carriers should avoid, he said.
With the turnover rate this high, it is a simple matter for a carrier to get stuck with a large stockpile of obsolete pagers, the financial implications of which can be devastating.
“Paging carriers must be careful of how they plan for the turnover of the device,” Reynolds said. “Modeling obsolete subscriber device scenarios and purchase scenarios are very complicated and any small variation can amount to tens of millions of dollars of prematurely obsolete devices.”
As advanced services become more popular, more manufacturers will make devices, compounding the problem. Over time, of course, this competition will lead to cheaper pagers but can cause headaches in the short term.
“It still won’t be a simple problem for carriers.”
He suggested carriers and the device manufacturers work together in an integrated process to decide which device is introduced at what time, allowing the carrier time to prepare. Also, the carrier’s marketing, sales, purchasing and distribution departments need to work together to decide when to buy a new device, how much and when to retire that device to make room for a new one.
Carriers themselves are well aware of this change in the device environment.
“It is a factor,” said Scott Baradell, director of corporate communications at Paging Network Inc. “It used to be a lot easier in that you once had a black box and that was the standard pager. The product lifecycle was five years, now its 12-18 months at the most. It does require more management of inventory. I think PageNet is (addressing) this through the reorganization,” he said referring to the company’s plan to centralize billing, customer care and inventory, among other corporate functions. He said the details of PageNet’s inventory centralization will be announced soon.
“It’s another example of how change in the industry is so rapid … that we’re reaching the point where, if you want to be quick on your feet, you need centralized systems that can evolve as your needs evolve.”
An added problem is how to get the consumer to pay for these devices. Leasing at the rate they do now won’t work, Reynolds said, because the customer will want a new device far sooner than it takes for him to pay off the old one. Yet asking a subscriber to pay the full price of the more expensive device up front serves as a barrier to entry and also limits that customer’s willingness to upgrade to more advanced services.
“They’re facing new technologies and want to get customers, but can’t charge for the full price up front because you might scare them away.”
If the carrier leases the pager, the carrier is responsible for providing a new pager for the new service when the subscriber wants to switch although the old one hasn’t been paid for yet. But, if the carrier demands the subscriber pays for the more expensive devices outright, then the user may not want to buy another more expensive device in nine months.
One solution is to ask for an up-front fee that covers a good portion of the pager cost and allow the subscriber to pay off the rest over the months of service, like a large down payment. Cellular and personal communications services carriers have used this strategy when faced with a similar problem.
The device manufacturers, Reynolds said, would be smart to create devices that have both entry-level features as well as longevity features. Then carriers will have little to fear in buying in bulk.
He pointed to the new AccessLink II from Glenayre Technologies Inc.’s Wireless Access Group as one example. Wireless Access is marketing the device as a small two-way device that can be sold as a 1.5-way device at first. Then, if that consumer wants to go to full two-way, he needs only pay for extra service because the device already is capable of two-way service. The pager also features an infrared port to easily add new software features so the hardware stays the same but the features can be upgraded.
“If done sensibly and economically, you can groom your customer to new services and invisibly add functionality,” on the same device, he said.
Another example is the 3N1 pager from Oi Electronics. Using OmniVoice Technologies Inc.’s VoiceOver solution-which allows carriers to offer numeric, alphanumeric and voice paging over FLEX and, soon, ReFLEX networks-a carrier can use numeric as an entry-level sales device and upgrade the customer to text and voice service without ever requiring a new device. The technology now is undergoing field trials by Arch Communications Group Inc. and TSR Wireless L.L.C.
“The multifunction approach avoids a pitfall of forcing an operator to make a choice of voice or alpha paging for their market rollout.”
Going further, Baradell said PageNet envisions a day where paging carriers no longer are responsible for providing end-user devices.
“In the longer term, we want to get out of the device business, to where we’re selling the service and the end-user receives the pager directly from the manufacturer,” he said.
