newsletter logo

Wireless News Aggregation


Paging's Future

A brief industry profile prompted by the MobileMedia bankruptcy filing
by
Robert Edwards and Bradley Dye
principals of

ROBERT EDWARDS ASSOCIATES

Is there a real problem with the paging industry? The sky is falling! Paging is in trouble! PCS is going to put paging out of business — why use a pager when you can have a telephone in your pocket? Look what's happened to MobileMedia Corporation ! Have you heard these dire prognostications? As professionals with many decades each of experience in the paging industry, we believe that the digital, one-way paging market is far from dying, despite the recent free fall of MobileMedia [discussed below] and its recent filing for reorganization under chapter 11 of the U.S. Bankruptcy Code.

Conventional Pagers are the Most Popular

Digital pagers are still the most popular and affordable. Some service providers, in addition to MobileMedia are indeed having problems, but we believe these are the result of management-related problems, not endemic to the industry as a whole. As Mark Twain said: “The rumors of [digital paging's] death have been greatly exaggerated.” The demand for low-cost, efficient wireless messaging services, continues to increase, as will be demonstrated below. Digital pagers in their two most popular forms, Numeric Display, and Alphanumeric Display, continue to be the most cost-effective way to communicate with people on the move. It is our opinion that this will continue to be so for the foreseeable future for a number of reasons, including the following:

  • A pager costs less
  • Better battery life
  • Simulcasting is superior technology
  • Better penetration into buildings
  • Fewer missed messages
  • Efficient use of radio resources
  • Smaller, lighter weight unit
  • More convenient to utilize effectively
Market Pyramid

We're not all flying to work yet. Fifty years ago futurists thought that by now, people would be flying to work everyday in personal helicopters. A few people do, but it is far too expensive for most people. A small wireless telephone in a person's pocket or purse is, without a doubt, the best way to “keep in touch,” but it too costs too much for a large portion of the population. However, there are a lot more people who can afford to utilize basic paging services rather than a wireless telephone or a two-way pager, as the graphic above shows. There are many people in the higher tiers who routinely carry both a cell phone and a numeric pager.

The Paging Market is Healthy

Strong growth will continue. Pager penetration is the percent of the total population of a country or market that uses a pager. Several countries in Asia enjoy a 30 percent penetration rate. The research and consulting firm MTA/EMCI, recently renamed The Strategis Group, estimates that the penetration rate in the United States at the end of 1996 was about 16 percent. That gives the industry a lot of room to continue to grow. Industry experts all predict such continued, strong growth.

Donaldson, Lufkin & Jenrette has issued the following prognosis:
Paging subs 1995 1996 1997 1998 1999 2000
One-way 34.08 40.85 47.00 52.00 56.00 59.00
Two-way 0.0154 0.150 1.50 4.50 9.00 14.00
Total subs 34.10 41.00 48.50 56.50 65.00 73.00
Penetration 13.00% 15.50% 18.20% 21.00% 24.00% 26.80%
(paging subscribers in millions)

MTA/EMCI has issued its prognosis which is similar to DLJ's:
Paging subs 1995 1996 1997 1998 1999 2000
One-way 34.50 42.20 48.20 52.00 54.00 54.80
Two-way 0.01 0.10 0.70 1.90 3.20 5.90
Total subs 34.51 42.30 48.90 53.90 57.20 60.70
Penetration 15.90% 19.90% 22.10%
(paging subscribers in millions)

Look at the growth of cell phones. Can these forecasts from the “experts” be believed? We think so. A good analogy can be made to the cellular telephone industry in the United States, which started on October 13, 1983. Analysts at AT&T, which at that time was the largest company in the world, forecasted a total of one million cellular subscribers in service by the year 2000. By 1993, the end of the first decade of availability of cellular telephones, there were 16 million cellular telephones in use, with an additional 14,000 new users coming on line per day. One year later, at the end of 1994, the estimated total was 23.2 million cell phones in use. By the year 2000, Herschel Shosteck Associates forecasts 60 to 70 million cellular subscribers. Paul Kagan Associates, Inc., is also forecasting 70 million cellular subscribers, and that does not count the new narrowband PCS frequencies telephone market. Forecasts for PCS telephone service usage [in addition to traditional cellular telephones], are:

Source Year 2000 (EOY)
BIA Consulting, Inc. 23.08 million
Donaldson, Lufkin & Jenrette 15.02 million
Paul Kagan Associates, Inc. 13.66 million
Insight Research Corporation 14.80 million

Thus, it looks like there will be between 80 and 90 million wireless telephones in service by the year 2000, instead of the paltry one million originally forecasted. The best experts in the world have consistently been overly-conservative when predicting the number of subscribers in both the wireless telephone and pager markets. The paging industry as a whole, despite growing pains and blips encountered by some overly aggressive concerns [i.e., MobileMedia], continues to grow larger and faster than anyone has imagined. [We'd like to remind you that at one time the venerable Alexander Graham Bell predicted that someday every city in the country would have a telephone].

The Outlook for Paging

The prognosis is for a HEALTHY paging industry . To summarize, the forecasts for paging [both one-way and two-way] in the U.S. market is an expected growth of 20 to 30 million subscriptions by the year 2000 — now that sounds very healthy to us! MTA/EMCI continues to forecast 80 million Cellular/PCS subscriptions, and 60 million paging subscriptions by 2000. The conclusion of Robert Edwards Associates is that there is nothing wrong with the market — just the marketeers. The public wants pagers and it is up to the industry to give them what they want. So, if the market is healthy, why are some of the paging companies unhealthy? It may well be a lack of focus on the core business. Some companies, with MobileMedia as the prime example, have been consumed by merger and acquisition fever and have not focused on growing the core pager market. Motivation, vision, focus, and innovation have to come from upper management. If upper management is not paying attention to the “knitting,” how can a company expect to prosper? It has to flow from the top down — to the troops. When the generals have a good strategy, the soldiers can win the battle. They can win, that is, if they have good training and lots of motivation.

Despite the naysayers and its problems, MobileMedia can still make it . Smith Barney Inc., one of the major brokerage houses, issued a summary on MobileMedia on January 31, 1997, the very day it filed for bankruptcy protection. In a section titled “Implications For Other Paging Stocks,” it stated its belief that the financial woes of MobileMedia will have a “negative impact on other publicly-traded paging companies,” and that they may experience near-term difficulties in the capital market. We agree in part, but only to the extent of concerns raised because of MobileMedia's financial difficulties and its ability to restructure and reorganize itself. In a copyrighted article published on MSNBC on-line service on January 28, 1997, two days before MobileMedia's Chapter 11 filing, the author states at one point that, “While a speedy turnaround at MobileMedia is not likely. . .” We disagree strongly, for with a solidly grounded management team, MobileMedia should be able to make a comeback. Under the leadership of paging industry-savvy executives, this business can be turned around in a relatively short period of time.

It is interesting to note that even in an article with an otherwise negative cast, the author of the MSNBC article, citing an industry analyst at Bear Stearns & Co., states that, “ . . . by the end of 1997, people will realize that pagers' lower cost, longer battery life and vast coverage area will make them a complement rather than a competitor, to PCS. ” Our point exactly!

Further, as regards paging's obsolescence, Jim Page, vice president of business development for the FLEXTM Technology and Systems Division of Motorola, has the following to say:

“Since the mid-80's, the 'experts' have consistently forecasted the demise of paging. First, it was cellular. Cellular performed dramatically well in the US growing from infancy in the early 1980's to on the order of 40 million users today. Interestingly, paging also stands at about 40 million users in the US. Then, SMRs and Mobile Data were going to eliminate the need for paging. Well, SMRs and Mobile Data have been around for a while now and Paging continues to grow. Now we hear PCS, Personal Handyphone, and GSM will eliminate paging. Maybe, but as long as paging sticks to its core competencies of best-in-class size (enabling 'unconscious portability'), in-building coverage (due to the characteristics of simulcast), battery life (FLEXTM pagers now get 4-5 months continuous on), the ability to broadcast (where most other wireless technologies are one-to-one only), and lowest cost per month to the end user (traditional paging is widely available at $10/month with unlimited use), then I think paging's position in the family of successful wireless communication technologies is secure. And, paging is now celebrating the fifteenth year of its forecasted demise.” [Emphasis supplied]

Similar sentiments have been expressed by Gerald McGowan, Esq., a partner in the Washington, D.C. law firm of Lukas, McGowan, Nace & Gutierrez, a recognized expert in telecommunications law who is very knowledgeable of the paging industry in particular, and has the following to say about the industry:

“People have been predicting the downfall of paging ever since I entered the field as a young lawyer in 1975. The emergence of each new wireless service was purported to be the death knell of paging. The naysayers failed to see that the new technologies had a 'coattail' effect — they increased customer awareness of the pager as a lower-cost alternative. Moreover, if there is one certainty in the communications industry, it is that the telecommunications pie is increasing at an exponential rate, not decreasing or staying static. The various wireless technologies out there are not perfect substitutes. Thus, consumers do not necessarily think, 'do I need a pager or a cellular PCS phone?' Substantial numbers of consumers choose both.”

The MobileMedia Situation

MobileMedia's buying spree and other missteps . We believe that the financial difficulties experienced by MobileMedia which led to its filing for bankruptcy protection were caused by mistakes made by the management team installed after the departure of MobileMedia's CEO, COO and senior vice president of operations. Over a three-year period, MobileMedia grew to become the nation's second largest paging company, purportedly with 4.5 million pager customers. The Company's growth was accomplished by its acquisition of a number of other paging concerns, financed through the means of $1.2 billion of capital and debt raised through two bond offerings totaling approximately $450 million, $150 million in equity infusion by the San Francisco investment firm of Hellman & Friedman, and $650 million in secured loans from a consortium of banks led by Chase Manhattan Bank. In addition to acquiring other paging operations, MobileMedia participated in the FCC-conducted auctions for the new narrowband PCS frequencies, paying in excess of $50 million to acquire a new narrowband PCS frequency license, and in addition, when it acquires BellSouth's paging facilities, it acquired an additional narrowband PCS frequency, for which BellSouth had paid in excess of $47 million. That sounded exciting to the Company and probably its lenders and investors. However, they all forgot one small detail. To utilize these new frequencies and licenses, MobileMedia would have to build out systems at a cost we estimate to be in excess of $100 million — money the Company would have to now raise. The recent FCC decision in regard to MobileMedia, stripping it of locations, may well be a blessing in disguise.

The Chapter 11 case is an opportunity to take corrective action . The Chapter 11 case of MobileMedia presents a unique opportunity for the Company to make substantial changes both internally in its management and strategies and financially, as regards its debt structure after it emerges from Chapter 11. In a discussion with Leon C. Marcus, Esq., of the New York law firm of Phillips, Lytle, Hitchcock, Blaine & Huber, and a leading bankruptcy law expert, he draws the following scenario for a re-emergent, lean and mean MobileMedia.

“Through a plan of reorganization in the Chapter 11 Case, MobileMedia will be able to shed a substantial amount of its annual debt servicing payments. If it is determined that its secured bank lenders are 'under-secured,' then they will not receive interest payments during the pendency of the Chapter 11 Case, and most likely will take a 'haircut' on the debt owed to them when the Company comes out of its bankruptcy case. The almost $450 million in unsecured bond debt [which was trading in the teens just prior to the Chapter 11 filing], will most likely be converted to equity. Thus an emerging, reorganized MobileMedia will have tens of millions of dollars less in debt servicing payments, monies that can be directed to working capital, customer relations and servicing and advertising. In the right hands, I believe MobileMedia can emerge as a strong, viable company.”

The Advantages of Paging

Robert Edwards Associates' rationale for optimism . Early in this article, we stated that it is our opinion that there will indeed be continued, strong growth in the paging industry for the foreseeable future for a number of reasons, which we listed — the self same reasons for optimism cited by the Bear Stearns analyst. We would like to expand on this theme, detailing the specifics for each of the elements.

  • A pager costs less. The conventional pager will always cost less to manufacture than a cellular telephone, a PCS telephone, or a two-way pager. It is a receive-only device. Other wireless devices contain both a receiver and a transmitter. This adds considerable cost to the unit because two radios are required inside the same package.
  • Better battery life. By virtue of being a receiver only, as opposed to being a transceiver (transmitter and receiver), the battery life of a conventional pager will always be much longer than other wireless communication devices. A transmitter consumes much more energy from a battery than a receiver. Several market studies by pager manufacturers have shown that consumers do not like to replace the battery frequently. Batteries last about four months under normal use in the newer pagers.
  • Simulcasting is superior technology. The way information is usually transmitted to a conventional pager is called “simulcasting.” This technical term means “simultaneous broadcasting” from multiple transmitters (and towers). No other wireless service can make this claim. Simulcasting is superior to other methods like cellular, which have to transmit a “where are you” signal from many different cells — this is where the name cellular comes from. This makes paging a little faster, but what is more important, since the signal going out to the pager comes from multiple locations, the chance of successfully getting the message to the pager is dramatically improved. Penetration into buildings, tunnels, and underground parking areas is better because the signals are coming in from several different directions.
  • Better penetration into buildings and fewer missed messages. Like in the theater, if only one spotlight is used, the stage will have harsh shadows and the actors will not be able to be seen clearly. With multiple lights shining from the front and the sides, we can see everything better and enjoy the play.
  • Efficient use of radio resources. There are other technical advantages since all the information being sent to the pager is going out over one radio channel. Radio channel licenses cost “big bucks” these days and more paging subscribers can be served on one radio channel with conventional paging than any other type of personal wireless service. Two-way paging requires a different kind of radio channel with a broader bandwidth, and cellular telephone uses hundreds of radio channels.
  • Smaller, lighter weight unit and is more convenient to utilize effectively. How about the size of the device, that is important too! Yes, some of the cell phones are getting very small, but look at the size of the new pagers. Remember a pager only has one radio in it and a cell phone or a two-way pager has two. Did you know that some of the early pagers were the size of a bread box? They were installed in trucks and were very heavy. Modern pagers have become very small. Some are the size of a box of matches, some are built into wrist watches, some look like fountain pens, and some are worn as a pendant on a cord or chain around the neck. The conventional one-way pager should always be smaller than other wireless devices.

Conclusion. Robert Edwards Associates strongly believes that the paging industry has the ability to continue to experience robust growth into the new millennium and beyond, and produce meaningful profits for its stockholders and investors.

About the authors
Robert
Edwards
Robert Edwards is recognized by many as the driving force behind the personal telecommunications industry. He founded Radiofone Corporation in 1969, which in its present incarnation, is MobileMedia Corporation. Radiofone, because of its many innovations in the paging field, grew at twice the national average for paging companies, and became the largest radio paging operation in the United States — both in terms of geographic area and number of pagers served. In 1982, Radiofone was sold to Metromedia, the broadcasting conglomerate. Metromedia chose Mr. Edwards to head its new nationwide telecommunications division by naming him Chairman and Chief Executive Officer of this division. He subsequently became Vice President of Metromedia, Inc. Mr. Edwards formed Cellufone Corp., a paging operation located in the Washington DC/Maryland area, and became its President. Cellufone was sold to MobileComm in 1992. Mr. Edwards is one of the founders of Robert Edwards Associates, a consulting firm in the telecommunications industry. Through his work with major paging manufacturers, both in the United States and Japan, Mr. Edwards assisted in the design of the first numeric display and alphanumeric display pagers. Mr. Edwards is the holder of a number of patents on components and processes in the electronics industry.

Bradley
Dye

Bradley Dye is Vice President of Sales and Marketing at Real Time Strategies, Inc. [RTS], a networking-solutions provider to the wireless industry. Mr. Dye has been involved in radio communications and electronics for over thirty years and is a specialist in radio paging and cellular telephone systems. He has traveled to over fifty-five countries in Sales and Marketing roles. Mr. Dye has been involved with the installation of paging systems and the supply of pagers to major service providers in Europe, Scandinavia, Mexico, South America, the Middle East, and Asia. Previously, Mr. Dye was with Motorola's Paging Products Group, where he was the manager of Market Development for paging infrastructure in forty-seven territories in Latin America and the Caribbean. Prior to that, he was International Market Development Manager for Motorola's Paging Products Group, with responsibility for worldwide marketing of pagers. He has written various technical and marketing papers about paging and the paging industry.
— 73 —

First published on the Internet: February 1, 1997

Source: 2016 Update: This paper was written 20 years ago by Brad Dye, with behind-the-scenes editing done by Bill Kaye, a New York attorney.
(Published here for reference only since some of this information is out of date.)


Home Page Directory Consulting Newsletters Free Subscription Products Reference Glossary Send e-mail