Confirming rumors that started when the company announced layoffs in March, voice paging provider Conxus Communications Inc. filed a voluntary petition for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware.
The privately held company said it will continue its sales and marketing activities on a limited basis while in Chapter 11 proceedings, and plans to continue introducing its second-generation voice pager from Motorola Inc.
Conxus said it has agreements with certain of its secured creditors for debtor-in-possession financing while in Chapter 11, during which it plans to seek out a partner, buyer or additional long-term investor to provide the necessary financing to emerge from bankruptcy.
“After extensive talks with our creditors and business partners, we are taking the most prudent step for the company, our employees and our customers by filing for Chapter 11 protection,” said Cecil Duffie, Conxus chief executive officer. “The company has a responsible plan in place that will allow it to continue operating and to rely on its current relationship with its vendor for unit production. The company also will focus its ongoing talks with business partners, investors and others on finding a buyer, or if possible, major backer.”
Conxus operates a voice paging network based on InFLEXion technology from Motorola Inc. Called Pocketalk, the service uses Motorola’s Tenor pager, and a second-generation LS950V is being introduced now. Most recently, Conxus began marketing a two-way text messaging service called Pocketext on the same network by loading ReFLEX technology onto the network.
Conxus has coverage and offices in Boston, New York, Philadelphia, Washington D.C./Baltimore, Atlanta, Dallas/Fort Worth, south Florida, Houston, Dallas, Chicago, San Francisco and Los Angeles.
Despite a strong fourth- quarter selling period, resulting in about 87,000 subscribers, first-quarter figures were lacking. The company had to meet tight subscriber figure deadlines to receive additional financing. Conxus would not reveal first-quarter figures, only that total Pocketalk and Pocketext subscribers totaled more than 80,000. But the timing of the bankruptcy announcement-coming as other companies announce their first-quarter earnings-indicates first-quarter figures were not up to par.
The company initiated a series of layoffs in March and refocused attention away from Pocketext in favor of Pocketalk. While the company would not comment on the extent of the layoffs, industry sources pegged the figure at about 60 percent of the work force, mostly sales and customer-service employees. A company spokesman said the company now employs more than 100 people, and no further layoffs are expected as a result of the bankruptcy filing.
Filing along with Conxus were four of its subsidiaries-Conxus Financial Corp., Conxus Properties Inc., Conxus Spectrum Inc. and Conxus Network Inc.
Conxus reports assets of between $10 million to $50 million with liabilities of more than $100 million, with creditors numbering between 16 and 49.
The company’s larger unsecured creditors include the Federal Communications Commission, with an $87.1 million claim for its narrowband personal communications services license. The company’s infrastructure vendor, Glenayre Technologies Inc., said it holds about $49 million in receivables from Conxus. In Glenayre’s first-quarter earnings release, the company said an unnamed account-now revealed to be Conxus-was experiencing financial difficulties that might affect Glenayre’s bottom line.
Motorola, which supplies the company with voice paging devices, is owed several million dollars for equipment, as well as $23.3 million in 9-percent convertible senior subordinated notes.
Conxus’ bankruptcy marks strike two for the yet-to-be proven voice paging market, which suffered its first miss after Paging Network Inc. failed in its rollout of VoiceNow, also an InFLEXion-based service.
Conxus originally planned to introduce Pocketalk in September 1997, after PageNet’s exclusivity on InFLEXion expired, but several delays involving network testing pushed the actual launch date to mid-November of that year. The delays meant the company spent more on infrastructure with no incoming revenue.
“Pocketalk enjoyed a successful launch in many new cities last year and the market trial of the second-generation product was extremely positive,” Duffie said. “Unfortunately, the length of time needed for us to get all our network components and the second-generation subscriber device online depleted most of our cash reserves. Recently, we decided to make a more formal strategic shift in our business plan to make the best use of Pocketalk’s success, but in this capital-intensive, highly competitive industry, we simply could not continue operating without additional financing.”
However, analysts continue to back the voice-paging model, reserving most criticism for the InFLEXion technology. The cost of building an InFLEXion network is too prohibitive and places too much pressure on voice paging start-ups, they say.
“It should make sense,” said Darryl Sterling, senior analyst at the Yankee Group, stressing that voice paging may be best suited as a complementary product to existing voice mail systems.
“As a stand-alone service, it may not be compelling, but as a complementary service, maybe it is,” he said. “The market for a pure, universal voice mail box that you can access from anywhere is not there yet. Rather than create a separate voice mail system, why not improve what’s already there?”
Sterling pointed to voice- paging technologies as holding greater possibility for the future.
“OmniVoice is doing great. The reason is because they didn’t create a new network architecture. It’s cheaper. You can install InFLEXion across the country for millions of dollars or install OmniVoice’s platform for less. Their whole mindset is different. The risk involved in using this product is much lower.”
OmniVoice is a platform that will allow voice messages to be sent over existing FLEX, and soon ReFLEX, digital data networks by compressing the message. The cheaper solution, Sterling said, allows carriers to spend money marketing rather than building the voice service.
“Their platform is digital protocol indifferent,” he said.
OmniVoice has the ability to run over Global System for Mobile communications or Code Division Multiple Access digital voice networks as well. For now, though, it has been designed for FLEX networks, because that is where the demand is.
Other voice paging operators include ReadyCom Inc., which markets more of a portable voice-mail device using cellular technology, and Cue Corp.’s CueVoice, which transmits voice messages using an FM subcarrier network.
