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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.
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:
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.
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.
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:
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 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:
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:
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.
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.
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.
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.)
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