NEW YORK-Operating outside the limelight cast by telecom deregulation and the Federal Communications Commission’s C-block auction for personal communications service, the paging sector is pursuing its own profitable agenda in the changing wireless environment.
By 2006, paging revenues are projected to more than triple to $11 billion and pagers in service almost quadruple to nearly 100 million, compared to 1994 numbers, according to Sharon Armbrust, vice president and senior analyst for Paul Kagan Associates Inc., Carmel, Calif. Armbrust served as moderator at a Kagan conference titled Wireless Telecom Values and Finance, held last week.
“Paging stocks have been weak in the first quarter because of fears that paging would be cannibalized by broadband or that one-way paging will be overrun by two-way,” said John L. Bauer III, senior vice president of Lehman Brothers Inc., New York. “But 90 percent of communications are one-way and 70 percent of e-mail and voice mail needs no response. Paging represents a time shift, same as the VCR.”
Compared with cellular, paging is more reliable, more secure and cheaper, in part because paging companies don’t need to interface with other telecommunications carriers, he said. Its networks are all digital, a big advantage in an industry that wants to transmit data. And it uses common standards, making it easier for computer makers to build pagers into their equipment.
Bauer predicted that paging stocks would rebound later this year, and that the unit subscriber growth in paging would grow at an annual rate of 20 percent for the next four to five years.
Economies of scale, among other factors, are driving merger and acquisition activity among top-tier paging companies. In the latest such development before the conference, ProNet Inc. of Dallas announced plans to purchase Teletouch Communications Inc. for $5.50 per share in a $181 million deal. The acquisition would move ProNet from the 1 million to the 1.4 million mark, making it the fifth largest paging company in the country in terms of subscribers, Armbrust said.
Other large paging companies already have positioned themselves for further acquisitions of small firms. Bauer ran down a list of possibilities coming up: “In the first quarter Preferred Networks went public with the stated goal of acquiring smaller companies and letting them continue as resellers.
“ProNet is working with Motorola on a nationwide network to serve as a beachhead to buy smaller players, while Teletouch is digesting six recent acquisitions and has plans for more.
“Metrocall plans within four-to-six weeks to buy an additional 700,000 pagers, and plans to own 1.4 million by the second half of the year. We know because we raised the money.
“A+ Network has 116 affiliates serving one million customers, with the right of first refusal to buy each one.
“Arch Communications’ purchase of Westlink Paging was its 33rd acquisition. They’ve said their deal flow has never been better, that they could write $1 billion in checks based on commercial bank lines of credit.”
A contrary view was offered by Gregory Rorke, chief executive officer of the nation’s second largest paging company, MobileMedia Communications Inc., Ridgefield Park, N.J.
“Fewer big players will be buying and there will be fewer transactions down the road,” Rorke said. If they do, he said, the acquisitions more likely than not will be based on the need to fill out spectrum or distribution channels.
