The paging industry experienced some greater-than-usual excitement in the second quarter that securities analysts at Toronto Dominion Securities Inc. believe will set the tone for the next stage of the market’s transformation.
Second-quarter highlights include: Arch Communications Group’s operational restructuring and financial recapitalization, Metrocall Inc.’s acquisition of AT&T Corp.’s Advanced Messaging Division and PageMart Wireless Inc.’s launch of the second facilities-based 1.5-way service in the country-the first based on ReFLEX 25 technology.
“We view these developments as positive signs that the industry is moving toward continued consolidation, which would enable companies to further realize selling, distribution and operating efficiencies as well as maintain stable” average monthly revenues per unit, the report read. These developments “portend an increasing degree of market segmentation and differentiation through the provision of value-added services.”
“Apart from consolidation factors, we applaud the recent paging industry announcements because they all suggest … that management teams are refining their operating strategies and progressing along the path of offering higher-value, differentiated services,” the report continued.
Analysts gave recommended “buy” ratings for SkyTel Communications Inc. and PageMart, while maintaining a “hold” rating on Arch, Metrocall and PageNet.
Its continued bullishness toward SkyTel stems from recent conversations with management that indicate the company will report second-quarter net domestic adds of up to 90,000, in line with expectations, and cash flow of about $27.5 million. Also, SkyTel did not leverage itself further to make its cash interest payments of $14 million on its 12.5 percent notes.
Toronto Dominion also saw as positive the new 1.5-way guaranteed messaging devices from Wireless Access and expects similar new products from Motorola Inc. These sleeker products are expected to increase subscriber growth for the rest of the year, the company said.
Finally, Toronto Dominion strongly endorsed SkyTel’s ability to compete in the wireless data market, pointing to its meter-reading agreements and its network’s diverse capabilities.
As for PageMart, Toronto Dominion foresees lower-than-anticipated second-quarter subscriber additions-about 117,000, instead of expectations of 155,000-mainly because of new pricing policies enacted on resellers.
ARPU is expected to be about flat with the first quarter while cash flow margins should increase, stemming from a reduced reliance on retail distribution channels, Toronto Dominion said.
The company expects significant disconnects in the reseller channel because of the AT&T-Metrocall deal. While PageMart provides airtime to about 88,000 of AT&T’s paging subscribers, which Metrocall plans to migrate to its own network, PageMart said a good number are Canadian roaming customers who are unlikely to churn because Metrocall cannot provide service to them.
Toronto Dominion said it expects PageMart’s Synapse card that will provide paging to the 1.7 million PalmPilot users to become a “rich source of high-margin revenue growth for the company.”