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The Opportunity

This is a brief report on the potential paging market in Latin America. All the factual information herein is available from public sources. The opinions expressed are solely those of the author and are based on his experience in this market.

The Market Pyramid
The market pyramid represents a given population arranged by income level. Near the top of the pyramid are a relatively few people with high incomes, and moving toward the bottom of the pyramid are more and more people with lesser incomes; ending in poverty. As applied to wireless personal-communications services, it clearly illustrates that the well-to-do are the primary users of cellular radiotelephones. Next comes the alphanumeric paging market with some overlapping into cellular. Alphanumeric pagers offer a high level of information content and utility to subscribers, but their cost is high in comparison to the numeric display pager. The cost of telephone operators to answer calls and type in the text messages must be factored into the cost of subscription to this type of service.

The Market Pyramid

The Current Market in Latin America
Alphanumeric paging is currently the dominant offering in Latin America for three reasons -- two technical and one cultural. In the past numeric display paging could not be offered on an automatic basis like in the US and other countries, because of the technical limitations. The inability of the telephone company to provide the proper interconnection to the telephone network with D.I.D. (Direct Inward Dial) trunks, and the lack of Touch Tone™ telephones made it necessary to process all incoming paging traffic through operators. It just did not make sense to offer numeric paging through live operators since the cost of the operators (although very low in Mexico) was a large part of the subscription cost. The market went from Tone and Voice paging directly to Alphanumeric paging without passing through Numeric paging like in the USA. It is interesting to note that the last four years Alphanumeric paging in the US has grown from 4% of the total to approximately 12% today.

The Technical Limitations
D.I.D. trunks make it possible for the telephone network to forward the called number to the paging system. When someone wants to send a page, they just dial a telephone number and the paging system automatically knows who the call is for. Every subscriber has a unique telephone number. Without D.I.D. someone has to ask. That means live operators. With Touch Tone™ telephones, the calling party can dial in the number to be sent to the pager. Without Touch Tone™, someone has to ask. Rotary or dial-pulse telephones will not work. Numeric display paging has been successful in the US because it is cheap and it is nearly automatic, at least no operators are required.

Cultural Influences
Cultural influences have also fostered the acceptance of Alphanumeric paging. Our Latin neighbors to the South are more social and expressive with each other than we northerners are. The ability to communicate on a personal level is important to them. A typical business telephone call generally includes a social interaction where one asks about the health and welfare of the other party, and often their family as well. For example in Puerto Rico (which is, of course, part of the USA) where the technical limitations do not exist in the telephone network, Alphanumeric paging has the same share of market as in Latin America. The busiest day of the year for paging in Puerto Rico is St. Valentine's day -- you cannot say "I LOVE YOU" on a Numeric pager.

The New Paging Market
But back to the Market Pyramid. A large portion of the population cannot afford the relatively high cost of the Alphanumeric paging service, or the cost of the Alphanumeric paging receiver, which is sold, not leased or rented in most of Latin America. These people need paging! The telephone companies in Latin America, are in the process of modernizing their telephone networks and some of them claim that the networks will be fully digital within a few years. Even after the networks are fully digital and D.I.D. trunks are made widely available, it will be many more years before the telephone instruments are all changed to Touch Tone™ models. In the mean time, if we want to dramatically increase pager penetration in Latin America we must find a way to offer Numeric paging without operator intervention.

The Technical Solution
Recent advances in technology now offer solutions to this problem. Interactive Voice Response (IVR) systems that incorporate independent-speaker speech recognition, are now reliable enough for Numeric paging. Speech-to-text (for Alphanumeric paging) is still many years away from becoming a practical reality, but recognizing the spoken digits of "zero" through "nine" plus "yes" and "no" is a feature currently available from several different manufacturers. It works equally well in English, Spanish, Portuguese, and several other languages. The new level of reliability of these systems is due, in large part, to high-speed DSP (Digital Signal Processing) chips. This is the same type of chip that is used to convert digital pulses on a music CD back into stereo sound. The hot news is that this technology will allow us to finally introduce the Numeric Display pager into this market. The key is price and the target market is the third circle (the big one) on the pyramid above. The acceptance of Numeric paging in Latin America will have a major impact on the market because it opens up a large segment of people who cannot afford Alphanumeric paging service.

Calling Party Pays
This service is not for everyone. A salesman, for example, would not want his (her) customers to have to pay to send a page. There are, however, many people who would like to have a pager and do not mind if their friends and business associates incur a small charge to contact them. It is very easy to offer both subscription paging and CPP through the same paging company. All it takes is the cooperation of the telephone company. Another big advantage is in collections: just one big check every month from the telephone company -- no collection problems with these accounts. People are really impressed when they find that they can purchase a pager and use it for "free" for the rest of their life. The topic makes for great advertising copy.

The Advantage and the Opportunity
Numeric pagers typically cost about one-half (or less) than the cost of Alphanumeric pagers. Since the cost of operators to process the calls does not have to be a factor in the cost of monthly numeric service, the subscription offering to the public can be very low.

National or Local Coverage?
It sounds great to say that a paging company offers nationwide service. Actually no one does. Some companies offer coverage in many cities and this allows them to say they are national, but they obviously do not cover rural areas since the population density is too low there to make it worthwhile. Of course, it would not be good business to spend a great deal of money installing equipment to cover areas where there are only a few cows and some farmers living. So that beings up the question about the cost of so­called national service compared to local service. The answer may vary based on the country, but in many of the larger cities in Latin America, a major portion of the people live in the capitol city.

The Mexico Story
SkyTel started up in Mexico in mid-1992 and by the end of 1994 they had over 63,000 subscribers under their wing (according to their annual report). When the other paging companies heard SkyTel was coming to town, they all practically panicked. They said, "Oh no, SkyTel will seal all of our customers!" That started a rush to modernize their infrastructure since most of them had old and obsolete equipment. But what a surprise! They all tripled and quadrupled in size while SkyTel grew the market. The same thing happened in Atlanta 15 years ago. Gencom (now PACTEL) owned the market and claimed they couldn't give away another pager. A Plus started a new marketing campaign for Bell South and put thousands of new pagers "on the street" in the first year. The interesting thing is that Gencom grew by an equal amount. So it is true, competition is good for business. Sure, SkyTel bought the market by allegedly spending $15 million dollars on advertising in their first year, but that is just my point: the two large Mexican telephone companies, and the two national TV networks are getting into the paging business now. They are all going to be growing the market.

The Taiwan Story
In 1986 Taiwan had a total of 10,000 pagers in use. They went to public tender for new infrastructure to support 500,000 subscribers. One of the bidders wrote a letter to the Taiwanese government telling them that the system was too big, that they would never use all that capacity. I sold the new system to them. It was a joint effort between, Spectrum Communications for the Paging Terminal equipment, Quintron for the Base Stations, and Multitone UK for the pagers. Today there are close to three million pagers in use. They have expanded the paging infrastructure a half a dozen times. All of a sudden, using a pager became cool, and everyone wanted one. In 1990 one of the several pager dealers there bought 526,000 pagers.

The Brazil Story
In 1990 while pager factories around the world ran three shifts just to supply Taiwan, Brazil with a population of 158 million, imported only 306 pagers. With good reason: the importation of finished electronic products was prohibited by Brazilian law. There were no radio frequencies available from the government, and the only paging services available used an antiquated-design, locally-manufactured pager in the same category as a "CB" radio. But that all changed quickly. A new government came into power, "Concessions" were granted on 900 MHz, and the importation of pagers was not only allowed -- the import duties were slashed. Today the paging industry in Brazil is growing rapidly. There are hundreds of thousands of new subscribers. Some saw it coming and are making money. The force behind the paging revolution in Brazil was my good friend and colleague, Mike Lu. Mike and I worked together while I was the Area Sales Manager for Motorola's Land Mobile Products and then later when I became Market Development Manager for pagers, I gave him some prerelease prototype Advisor™ pagers at the factory to take to back to Brazil. We had to get special permission to get them out the door. He presented one of them to the President of Brazil and that was the beginning of the opening up of the Brazilian market for modern FM paging. Mike's efforts have largely gone unrecognized, but he was the one with the vision.


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