OXFORD, United Kingdom-The European paging industry entered 1998 with the loud disclaimer that it had, at long last, found its high-growth niche in mobile communications. With reports they had managed to grow the total user base by more than 50 percent during 1997, European paging operators and equipment developers looked forward with anticipation to even greater successes in 1998.
However, this dawn of a new age in European paging has proved to be filled with little but disappointment and disaster as a number of operators declared themselves bankrupt and pager manufacturers announced they were pulling out of the business.
The primary cause of this switch from `boom to bust’ is being laid at the door of calling party pays (CPP) for paging. This novel marketing strategy seemed guaranteed to give the paging industry access to a consumer market that would strengthen its revenues and provide a low-cost messaging alternative to GSM (Global System for Mobile communications) operators.
Operators providing CPP services in France, Germany and the United Kingdom all reported substantial growth during 1997, with an overall customer base (both CPP and business users) in Western Europe being reported up 51 percent from 1996 to more than 8.6 million. But the cost of maintaining CPP usage in a highly competitive mobile communications market proved too high for two German operators, Miniruf and DfR, which both sank into bankruptcy during the latter half of 1998. This problem reportedly has affected operators in France, Portugal and Spain, as well, where dramatic restructuring and network mergers now are underway.
This thorny issue is perhaps best illustrated by the experience of Germany’s leading paging operator, T-Mobil. This Deutsche Telekom-backed operator bullishly entered the CPP market in December 1994 only to find that maintaining revenue-earning call rates required significant consumer marketing expenditure. According to T-Mobil, which has sold more than 1 million CPP pagers under its Scall branding, it has spent more than DM30 million (US$18 million) on promoting its CPP service and an equivalent amount again on marketing communications.
Unfortunately, this ambitious plan has proved the consumer market remains unconvinced of CPP’s benefits. T-Mobil said its media blitz, which started in 1995, resulted in CPP calls reaching a peak of more than 4 million a month by mid-1996. However, despite this early success, CPP calls now have plummeted to under 2 million, which has returned T-Mobil to the position it experienced during its growth phase in mid-1995.
The struggle by operators to remain afloat in these troubled times has caused pager manufacturers to sharply review their likelihood of future profits. Industry stalwarts L.M. Ericsson, Philips Electronics N.V. and Samsung Electronics Co. Ltd. recently announced they will, respectively, close, sell and restructure their pager-manufacturing divisions.
These seemingly harsh decisions to pull out of paging have been made in the light of the ever-onward and upward march of GSM and the more recent aggressive marketing to paging users of prepaid cell-phone offers.
Where does this leave European paging? According to the European Public Paging Association (EPPA), operators in the three main countries expect to report a 20-percent growth in customers for 1998 compared with 1997. Topping this list will be France with nearly 2.5 million users (4.3-percent penetration), up from 2 million in 1997; the United Kingdom with just over 2 million users (3.5-percent penetration), up from 1.63 million in 1997; and Germany, growing to 1.77 million users (2.2-percent penetration), up from 1.6 million in 1997.
This growth, albeit down significantly from that experienced in 1997, most likely has been built on a more stable base than the froth of “one-call only” CPP users.
But the real, and presently unanswered, question for European paging is its future position in the mobile communications market. The industry now is showing the first signs of attempting to move away from selling on the basis of its long-held technical benefits to offering content-based services that can provide real value to its customers.
