As the paging industry continues its transformation to narrowband personal communications services and engages in high-level consolidation, some have questioned the fate of the smaller, mom-and-pop paging carriers.
In an industry expected to be dominated by two or three national players, where do the small, local providers with less than 100,000 subscribers fit in?
According to some, the worst choice is to continue offering local paging service as if nothing has changed.
“Local digital paging is as much a commodity product as local long-distance,” said Eric Furlow, president of Furlow Consulting Corp., which specializes in paging company acquisitions and divestitures. “There’s eight to 10 other carriers offering the same thing.”
Furlow, who worked for several smaller paging carriers in the past-as manager of mergers and acquisitions for A+ Network and as district manager for Network USA-also said to forget about expanding current infrastructure or building out two-way ReFLEX networks.
“You don’t want to spend the capital to build any of these systems,” he said.
While a quality network and engineering foundation is necessary in any successful company, close marketing relationships with local residents are much more valuable, he explained.
Smaller carriers have several means to exploit this resource-sell the company to a provider of other telephony services, resell other telephony services, or consolidate with other smaller paging carriers to create a larger company. The main idea is to exploit their greatest asset-the customer base.
“That’s the trend to survive,” Furlow said.
Companies that provide Internet, cellular, cable or competitive local exchange services on a smaller scale are always on the make to acquire more customers, Furlow said. These companies have little interest in paging services. What interests them is smaller carriers’ customer bases. A local paging carrier with 40,000 subscribers represents 40,000 new customer contacts for these service providers, which they can acquire cheaply.
“The toughest part of selling is getting in the door,” Furlow said. By acquiring a carrier with 40,000 subscribers, the ISP or CLEC or cable company can then market its other telephony services via the paging bill. “That’s the value of these consolidations.”
The beauty of it all, he continued, is that small paging companies are relatively inexpensive to acquire. Paging companies sell for anywhere between $150 to $400 a unit, Furlow said, as opposed to cable companies, which sell for up to $4,000 a household.
Carriers would gladly pay $400 a unit for access to new customers, Furlow said.
“The goal is to decrease churn,” he explained. “If you buy long-distance, paging and cellular service from me and I’m sending you one bill, you’re less likely to discontinue service with me.”
This business model is central to the strategy behind Aquis Communications Inc.’s consolidation plan. The company, led by John Adiletta as president and chief executive officer, quickly bought up the paging assets of Bell Atlantic Paging and Paging Partners Corp. More recently, it bought Francis Communications Inc., adding another 25,000 subscribers. This paging consolidation was just the first of a two-pronged plan.
“The immediate-term goal is to create value for our shareholders,” Adiletta said in May. “The way to create this value is in two areas. First, become a significant provider of paging services. But in addition, position ourselves as an integrated provider with additional services.”
Having compiled a base of about 475,000 paging subscribers, the company is following through with the second stage of its strategy, acquiring companies with other services.
In June, Aquis announced its intention to buy Intelispan, a virtual private network provider. Just last week, it acquired SunStar Communications of Tampa, Fla., and signed a letter of intent to buy Comav Corp. SunStar sells Internet services over an intelligent private network to financial institutions and provides dial-up Internet access to corporate and individual clients. Comav is a facilities-based provider of competitive local exchange services in Framingham, Mass., and resells long-distance services.
Another industry consolidator, MessageLink Inc., has chosen a slightly different strategy in that it plans to acquire a number of smaller paging carriers, and only paging carriers, with the intention to sell out to a larger carrier in three years.
“Our ultimate goal is to grow the company through acquisitions and internal marketing to approximately 500,000 subscribers and over $50 million in revenues within three years,” said Don Buzzelli, the company’s president and chief executive officer. “I think we will be a prime acquisition target for someone looking for that in the future.”
But Buzzelli is offering more than just numbers. He’s offering location. MessageLink’s strategy is to buy solid paging carriers operating in second- and third-tier markets, where some larger carriers do not have a footprint.
Additionally, MessageLink plans to convert all the acquired companies to a common billing and accounting system. Any larger paging carrier interested in buying the company would gain not only a large customer base, but also additional footprint for less than the cost of building its own network, with the additional bonus of only one billing and accounting system to integrate.
Contributing to this recent ramp up of paging consolidation is the fact that the noncompete clauses signed in the acquisition heyday of 1994-1995 have expired, Furlow said.
“I don’t expect it to reach the ’94-’95 pitch, but it’s by no means over,” he said. “Activity has picked up in the last year-and-a-half.”
Furlow said any carrier interested in participating in this new round of consolidation had better get its affairs in order now.
“When you go to sell a company, the No. 1 aspect you can control is to be organized. If you’re not organized when a buyer looks at your company, he’s going to tell you to get organized and come back later. But buyers are busy … (and) may find something else to buy,” in that time, he said. “It’s a tough enough process without you not being organized.”
Items to have in order include financial statements, customer base trends and engineering assets.
