According to popular belief, the future of the paging industry is text messaging, particularly two-way services. So what does that mean for the vast numbers of smaller, regional paging providers that cannot upgrade to two-way networks? What is the outlook for the regional mom-and-pop one-way providers?
Apparently, not bad. The reason is smaller carriers don’t have the same need for two-way services that larger carriers do and therefore can survive without them.
“I think for the larger carriers looking at declining margins, they have to [look at two-way],” said Cynthia Hswe, wireless analyst at The Strategis Group. These companies have gotten too big to survive offering a low-growth service like one-way paging.
Although traditional paging is declining, it remains a large enough opportunity for smaller carriers, which don’t require as large a subscriber base to survive as nationwide players do.
“They don’t have stockholders breathing down their neck,” Hswe said.
Ed Baker, chairman and chief executive officer of Arch Communications Group Inc., is leading the consolidation race with his company’s merger with Paging Network Inc. Combined, the two will form the largest paging carrier in the nation, complete with some 16 million subscribers and a nationwide, two-way ReFLEX network.
Everything about the Arch-PageNet deal follows the trends shaping this evolving industry-large, public paging carriers can’t afford to rely on the traditional paging model of old.
“The new opportunity of wireless data and interactive messaging is huge, a $25 billion opportunity over the next five to seven years,” Baker said. “The traditional paging opportunity is about $5 billion to $6 billion … The reason we’re turning to wireless data and interactive messaging is because this traditional paging business is in a state of decline. We need to find other opportunities to increase revenue.”
So obviously, advanced services like two-way and wireless e-mail are part of a greater growth market that carries higher margins. But there are significant entry costs to that market, like building a nationwide, two-way data network. The larger carriers have the need for this higher-margin business, and have the capital-or at least the borrowing capability-to build the networks needed to support it.
A big pond
Smaller carriers don’t, but Baker said a $5 billion market is a large enough pond so there are room for smaller fish.
“To compete and pursue that $25 billion, you’ve got to make a sizable investment to have a ubiquitous network. Many smaller carriers don’t have the investment capabilities to do that,” he said.
“The conventional paging business, which means numeric display, is a very attractive margin business,” Baker said. “It is a strong margin business.
Baker expects smaller carriers to sell facilities-based one-way service, and maybe resell two-way services, as well as cellular service and other communication packages.
“Some that are good business operators will do very well,” he said.
While the nationwide players often get all the attention, Baker said there are plenty of smaller, regional communications providers offering the same thing on a limited basis and survive just fine.
“How many long-distance carriers do you think there are?” he asked. “Most people only name the biggest three. But there are hundreds. Many of them are quite successful. You’ll see the same parallel is happening in the paging business.”
Don Buzzelli, president and chief executive officer of MessageLink Inc., which is in the process of buying up smaller carriers into one larger organization, echoed these comments.
“I still believe there is a large opportunity for conventional paging out there,” he said. “Financially, these guys have made money and they will continue to make money over the years.”
Like any good warrior, successful small carriers turn their weaknesses into strengths. Because of their size and regional limit, small carriers are able to focus on specific niches that characterize a particular region, giving them much closer ties to their customers.
“Smaller carriers have gone very niche. They can focus on certain business-to-business opportunities in that market,” Buzzelli said. “The Internet has given us so much broader ability to communicate with our customers. We’re connected with our people all the time.”
This is why larger carriers have resale deals with smaller carriers and resellers.
“We fit a major market niche for them (carriers). They can’t do what we do. our relationships with our stores and customers are substantially better.”
Smaller and regional carriers also serve a more blue-collar work force, somewhere along the lines of 60 percent, Buzzelli said, which is less likely to require some of the more advanced, enterprise-access technologies adopted by larger carriers.
But despite the lack of demand and need for advanced services, smaller carriers soon will have to take steps to ensure their business remains viable. The amount of money to be made is declining, and in about eight years, it may run to a trickle, according to Buzzelli.
“I’m not saying they can’t retain subscribers, but they’ll have to get into other areas in wireless,” Buzzelli said. “The only way that they’re going to survive is to try to take a little bite out of what the future has to offer.”
This may include reselling cellular services, Internet service, long-distance and anything else needed to bundle a number of communications needs into one attractive package, based on the niche market in mind.
Buzzelli figures one-third of smaller carriers will engage in regional, low-level consolidation, another third will continue doing business successfully as they are now, and the last third will go out of business altogether.
