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Cutthroat Pager Industry Fights for a Beeping Piece of the Pie

Messaging: New retail and marketing woes and changing technologies are taking their toll.


SAN DIEGO — At first glance, the $4-billion paging industry would seem to be going full tilt.

The total number of users of digital messaging devices grew by a staggering 8 million customers last year to 35 million; analysts expect a comparable addition to the beeper base this year.

Driving the growth are lower prices and the expanding belief among consumers and businesses that they can't do without an electronic tether.

That belief has benefited supplier companies such as San Diego-based National Dispatch Center, which sells its operator, news and electronic integration services wholesale to some of the nation's largest paging carriers, including PageNet, MobileMedia, SkyTel and AT&T.

Founded in 1990 by former NASA communications expert John MacLeod, National Dispatch is one of San Diego's brightest corporate stars, doubling its revenue every year. Recently it has been adding 100 employees a month to a payroll that already totals 1,200.

But cutthroat price competition and warp-speed changes in technology are sure to make it difficult for all but nimble-footed competitors to keep up. Turbulence in the rapidly consolidating industry has caused paging company stock prices to fall 30% to 60% this year. Some analysts fear outright for paging's future.

All of this movement is having a predictably unsettling impact on National Dispatch Center. "We are dealing with a lot of changes," said MacLeod, who is also NDC's chief executive.

Overall industry revenues--hardware sales plus service--rose by only 4% last year, although the number of users increased by nearly a third, according to Dataquest, a San Jose-based high-tech research firm. The per-customer drop in revenue is a simple result of paging carriers cutting rates for both hardware and service in a bid to grab market share.

"The same thing happened in cellular telephones," said John B. Ledahl, Dataquest's wireless program director. "It's the typical phenomenon of having a lot more people sign up and pricing going down because the cost of [providing] the service is less expensive all the time."

As the pager industry becomes more consumer-oriented and less dominated by business users, carriers are grappling with a host of marketing and retail distribution problems they never encountered when dealing with mainly business customers, said Eric Zimits, a telecommunications analyst at Hambrecht & Quist. Among these problems is "churning," or rapid customer turnover. That's a problem because customers often drop the service before they've been members long enough for their paging service to recoup its sign-up costs.

Meanwhile, the paging industry is being heavily affected by changing technology. Looming on the horizon are two digital communications innovations, PCS and two-way paging, that may significantly alter the playing field and force paging companies to make costly investments in technology that may or may not succeed in the marketplace.

PCS is an acronym for personal communications services--basically, a cellular telephone that includes such features as electronic messaging and paging in the same handset. The device may take market share away from pagers if users can get an affordable all-in-one service package from a telephone or cellular company.

Meanwhile, two-way pagers, a new generation of beepers, are just being introduced. They enable users to respond to a page, much like electronic mail, using a small keyboard incorporated into the unit.

But the technology so far has proven to be a problem: Difficulties encountered by SkyTel, one of the first carriers to offer two-way pagers, caused the stock of parent Mtel to fall sharply last year, creating nasty side effects for other pager shares.

And while Bankers Trust telecommunications analyst Jeanine Oburchay believes it will be years before PCS prices drop low enough to supplant pagers in the hearts and budgets of cost-conscious small businesses, the low-cost digital devices will at least bring prices down.

That's good for customers but bad for carriers whose profit margins will feel the pressure.

Pager service today can cost as little as $8 per month for numerical messages--generally the callers' phone numbers--and roughly twice that for text messages. By contrast, cellular telephones can cost as much as $20 to $30 a month, plus per-minute charges. PCS and other digital cell phone services will cost somewhat more.

Pagers have defied earlier predictions of an imminent demise, most recently when cellular telephones' growing popularity prompted some analysts to predict that customers would simply end up making a mobile call instead of relying on a digital beep to get someone's attention.

But the relatively high cost of cellular calls and the low life of cellular telephone batteries created a niche for beepers. Many subscribers use beepers and cellular phones in tandem, giving out their pager numbers and returning the page by cellular phone.

National Dispatch Center figures diversity is its best defense against rapid change. Part of its business is as a wholesaler of operator services to transcribe text pages, which now make up about 10% of all digital pages. Text messages are growing at a 50% annual clip nationwide.

The company also provides a computerized "gateway," or digital interface, that enables its 1,200 carrier clients to send messages across one another's pager networks in a digital language understood by all--allowing the customer of one page service to page a client of a rival network.

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