In recent months, several alliances and partnerships have been formed among paging carriers that traditionally have been fierce competitors. But both analysts and carriers say this new teamwork in no way diminishes the competitive spirit among the industry players, but rather is a unified effort to clear a new playing field for competition-narrowband personal communications services.
For years, paging carriers have competed on price. Now they plan to compete on advanced services. But the transition to this new field isn’t easy. It requires an enormous investment in network buildout and creation of new revenue streams.
The industry faces external challenges from wireless voice carriers looking to offer their own data services. However, paging carriers have a window of opportunity in that the voice carriers have other priorities to meet before offering messaging and data.
With this in mind, paging carriers are working together to carve out their own space to again battle for the elusive customer dollar.
“Bottom line is, carriers now are making a statement on whether they’re in advanced messaging or not,” said Darryl Sterling, senior wireless analyst at the Yankee Group. “In the old game, they were limited in what they could offer. Now they are investing in their future in advanced architecture.”
That said, it seems fitting the company doing the most to rally the industry behind NPCS is the one that has made the largest and most recent investment in that space-PageMart Wireless Inc.
“In terms of capital and operating expenses, PageMart has dedicated the highest percentage of financial strength to this thing called advanced messaging,” said John Beletic, chairman and president of PageMart.
He said the company has invested 75 percent of its capital expenses building the recently completed nationwide ReFLEX 25 NPCS network and is dedicating half of all operating cash flow to cover the resulting operating losses. With a total investment pushing $500 million dollars, PageMart is keen to put the network to use.
As such, the company is the driving force behind two long-term strategic alliances involving several industry players. Looking at these partnerships and alliances, a dominant theme emerges-distribution. The motivation? Money.
Beginning last November and continuing through May, PageMart forged long-term strategic alliances with other paging carriers, which involve reselling and sharing of the PageMart Network.
Metrocall Inc., AirTouch Paging Inc. and Arch Communications Group Inc. will resell PageMart’s ReFLEX 25 guaranteed messaging and other services. In return, PageMart has agreed to share the inbound channel of its network with these three when they build their own ReFLEX networks. Converting the outbound channels of existing one-way networks to ReFLEX-based two-way is a relatively easy matter. However, a two-way network requires an inbound channel receiver-something existing one-way infrastructure lacks.
The incoming channel is a two-way carrier’s greatest liability because it carries much less traffic, and therefore generates less return compared with the large investment required to create it. By sharing the inbound channel, PageMart makes more efficient use of its inbound capacity-as well as compensation for its use-while the other carriers can offer two-way service more quickly, meanwhile constructing their own inbound channel.
“We give them greater speed to market and efficient use of capital and in return get help paying for the network,” said Beletic. “We have a huge interest in adding distribution power to our network.”
The distribution theme has been reflected in other alliances. Paging Network Inc.-a FLEX-based paging carrier-became the largest distributor of BellSouth Wireless Data L.P.’s packet data-based Interactive Paging messaging service. This alliance mirrored one by SkyTel Communications Inc. and American Mobile Satellite Corp., under which SkyTel will market and distribute AMSC’s eLink paging service, using the Ardis packet network.
These two alliances were formed with the idea that paging carriers have better distribution channels and marketing programs aimed at the horizontal market than packet data carriers do.
In turn, the packet data carriers offer a lower-latency network paging carriers cannot match, so reselling the services allows them to retain control of the customer.
PageMart also has taken the lead with the Personal Communicator Wireless Alliance, designed to promote ReFLEX as the means of wirelessly enabling personal digital assistants in the future. The alliance includes Motorola Inc., Glenayre Technologies Inc., AirTouch, Arch, Conxus Communications Inc., Metrocall, MobileMedia, PageNet, SkyTel and TSR Wireless L.L.C.
While the network-sharing agreements bring distribution power from within the paging industry, adding ReFLEX technology to a device like the PalmPilot from 3Com Corp. adds the powerful distribution channel of the handheld computing industry.
The Yankee Group’s Sterling said the alliances “create a distribution arm that’s much more complete. More people selling a product means more people on the network, which means they can break even quicker … It minimizes the disincentive to enter a nationwide NPCS game.”
Looking beyond his company’s own network, Beletic said the alliances also aid the industry as a whole in its impending battle with data-enabled voice carriers.
“Clearly, whereas the paging industry historically had only competition from within, the industry now has competition from without. We do share a common interest in driving the cost of subscriber devices down through increased volumes.”
Other examples of the industry working together is the creation of a common standard to transmit information services, and the ongoing FLEX family licensing negotiations between Motorola and Glenayre. Beletic said he expects other partnerships to develop over time, such as paging carriers sharing a common Web site where users would go to compose and transmit a message to a subscriber on any network.
Of course the ultimate partnership among companies of any type is a merger, and consolidation is rampant in the paging industry. Of the top 10 paging carriers, all believe the industry eventually will shrink to about three national players. Financial analysts say strategic relationships like those detailed above pave the way for a smoother acquisition and integration process, a view Beletic did not dispute.
“I think consolidations are principally driven by the belief that a merger will increase stockholder value,” he said. “That notwithstanding, an enabler is management teams liking each other. Management teams that learn to work together have a higher probability of consolidation.”
Beletic stressed that while industry cooperation overall is positive, it must remain in the realm of fair play.
“It’s important that companies work together in areas where it’s legal to work together,” he said, pointing out that companies in these alliances and partnerships have anti-trust lawyers present at all meetings.
“At the end of the day, participants remain very tough competitors,” he said. “Paging remains one of the very toughest price-competitive markets that remain in any business in the U.S.”
