The U.S. paging and messaging industry is still declining. Nationwide carriers are still losing thousands of customers every month-both one- and two-way subscribers-and there is no indication the tide will turn anytime soon.
However, industry players continue to offer hopeful outlooks on the future. Some predict the decline will soon slow to a trickle, eventually stabilizing, while others see opportunity in other areas of the wireless industry. And though it’s unclear how the paging and messaging market will play out, the tenacity of those in the industry cannot be ignored.
“It’s the 20th year of the death of paging,” said Lowell Todd, president of SBC Paging, explaining that industry watchers have predicted the demise of paging since the rise of cellular more than 20 years ago.
Others offer an even stronger outlook for their business.
“Metrocall right now, today, is the most efficient operator in the business,” said Vincent Kelly, Metrocall’s president and chief executive officer. “We think if the industry consolidates, Metrocall should be running it.”
Despite almost continuous predictions of massive consolidation in the paging and messaging industry, little has actually happened during the past two years. Most of the industry’s major players have pushed through the bankruptcy process and emerged on the other side, lighter and healthier, with greatly reduced debt obligations. And through significant streamlining and operational reductions and rearrangements, most have managed to considerably cut costs.
But gaining a clear picture of the paging and messaging industry is difficult. No analyst or research firm covers the market, and now only the industry’s top two players-Arch Wireless Inc. and Metrocall-remain public companies filing with the Securities and Exchange Commission. And according to quarterly reports from both Arch and Metrocall, the paging and messaging market is still in a tailspin.
For the quarter that ended last month, Arch reported revenues decreasing to $165 million from $223 million in the same quarter last year. The carrier’s number of units in service dropped from 7.7 million to 5.2 million during the course of the past year. The number of the carrier’s two-way messaging subscribers decreased to 335,000 from 371,000 in the same quarter last year.
Metrocall’s results paint a similar story. The carrier reported total quarterly revenues of $87 million, down from $112 million in the same quarter last year. The carrier’s subscriber numbers dropped from 5 million to 3.4 million, with two-way subscribers declining from 232,000 to 198,000.
In 1998 there were about 40 million paging subscribers. Today, that estimate is about 14 million, a decline largely attributed to the competition from cellular carriers. The situation has affected the industry’s top carriers in a variety of ways:
c Arch last year emerged from bankruptcy with a much-lightened debt load, but in its recent SEC filings hinted that it could file again for bankruptcy protection.
c Metrocall also recently emerged from bankruptcy, and Metrocall’s Kelly said the carrier would likely make a bid for Arch if it filed for bankruptcy.
c Leucadia National Corp. acquired WebLink Wireless earlier this year after the company filed for bankruptcy, and now WebLink is a wholly owned subsidiary of Leucadia. N. Ross Buckenham, WebLink’s CEO, said the carrier wouldn’t disclose revenue numbers, but said WebLink is “profitable with a strong positive cash flow.”
c SkyTel Communications Inc., owned by MCI (WorldCom), is still up for sale following WorldCom’s accounting scandal. Buckenham said WebLink is participating in the bidding process to purchase the carrier.
c Verizon Wireless continues to quietly operate its paging and messaging business.
c Paging mainstay Ameritech is no more, following SBC’s decision to rebrand its paging business. Now it’s just called SBC Paging. The carrier declined to offer revenue or subscriber numbers, citing company policy.
The constricting paging and messaging market is also driving industry players to try new strategies and business models.
SBC Paging is staking its future on the tried-and-true enterprise market. Lowell Todd, the carrier’s president, said business users remain the key market for paging and messaging services. As a result of SBC Paging’s focus on the business market, Todd said the carrier’s customer base is relatively stable.
“We really don’t see a lot of businesses giving up on paging,” he said. “The industry has been kind of bashed around in recent years, but we find it’s alive and well in the enterprise.”
WebLink is following a slightly different track. The carrier is working to become a “carrier’s carrier,” offering its extensive ReFLEX two-way paging network to others in the industry. Metrocall, Arch, Verizon, SBC and 25 smaller carriers use WebLink’s network to sell two-way messaging services.
Buckenham said WebLink manages about 1 million customers, and about half of those are two-way subscribers. He said WebLink’s two-way messaging network offers several key features over other wireless networks, including in-building penetration, coverage, reliability and delivery confirmation.
Buckenham also echoed Todd’s appraisal of the business market.
“Businesses buy value,” he said. “Businesses buy industrial strength. Businesses are not looking for glitz.”
Buckenham predicted that the end is in sight for the industry’s massive subscriber declines. He said the industry started with a core group of about 10 million business users, and the industry is rapidly shrinking back down to that same number as consumers and others churn off to other networks.
“I think the key message is that paging has found its home,” he said. “The industry is returning to its user base.”
Others don’t agree.
“I see it (two-way messaging) as a niche product that doesn’t have a lot of growth,” said Metrocall’s Kelly, adding that there is no indication that the declines in paging and messaging subscriber numbers will slow anytime soon. “We’re trying to create a future for ourselves that’s beyond just a paging competency.”
Kelly said Metrocall is working to resell voice and data services from a variety of carriers, including AT&T Wireless Services Inc., Nextel Communications Inc., wireless data carrier Motient Corp. and an unnamed Wi-Fi network provider. Kelly said Metrocall operates a sales force of more than 500 workers, and the carrier is looking to provide a range of wireless services for business customers.
“We still have significant distribution capabilities,” he said. “We have been able to successfully distribute more than pagers.”
Further, Kelly said Metrocall is streamlining its operations and financials to make the best use of its revenues. Kelly, Metrocall’s former chief financial officer, boasted of the carrier’s increased free cash flow and revenue retention.
“We are managing our cost and distribution to generate the largest amount of cash flow over the longest possible time,” he said. “We are going to fair much better.”
