Paging Network Inc. Business Information, Profile, and History

History of Paging Network Inc.

Paging Network Inc., known as PageNet, is the largest provider of wireless digital messaging services in the United States with more than 4.1 million pagers in service. According to PageNet's 1993 annual report, the company has a subscriber base three times as large as that of its nearest competitor. PageNet operates in all 50 states and the District of Columbia. Its combined local, regional, and national service areas encompass more than 90 percent of the U.S. population.

PageNet was established in 1981 by George M. Perrin, who served as president and chief executive until 1993. Perrin was formerly the president of Gencom, Inc., a paging subsidiary of Communications Industries Inc. Characterizing the industry as comprising small companies using outdated equipment, Perrin founded PageNet with the hope of building a more efficient and less costly service. Start-up financing of $6 million was provided by a group of Chicago-based venture capitalists.

PageNet began operations in June 1982, with headquarters established in the Dallas suburb of Plano. That year, Terry L. Scott, formerly with Arthur Young & Co., joined the company as chief financial officer; Scott would succeed Perrin as president and chief executive officer in 1993. PageNet's first paging systems were established in Detroit and Phoenix, and expansion in Ohio and Texas quickly followed. Marketing efforts focused on offering quality service at the lowest cost, and, by 1983, PageNet's first full year of operation, the company reported net revenues of $11.8 million.

By transmitting signals over radio frequencies controlled and allocated by the Federal Communications Commission (FCC), paging services allowed subscribers to receive messages through the individual paging devices they carried. Early pagers notified subscribers of incoming calls by sounding a tone; upon hearing the tone, the subscriber would then use an established telephone number to return the call.

However, technological advances soon led to the development of numeric display pagers. To activate numeric display pagers, a caller dialed a telephone number assigned to the paging service subscriber. Using a touch tone phone, the caller could enter the numeric code displayed on his pager. Most often the code entered was a phone number at which the caller could be reached. Pagers notified subscribers of incoming calls by vibrating or beeping and were often called "beepers." By the middle of the decade, numeric display pagers had supplanted the tone-only models as the most popular form of pager.

In 1987, PageNet introduced alphanumeric pagers. These pagers had the ability to display alphabet characters as well as numbers. Although they offered increased flexibility in messaging, alphanumeric pagers failed to gain widespread popularity due to the higher cost of the service, difficulties with the technology, and the inconvenience callers experienced in trying to input messages. PageNet reported that in 1993, 95 percent of the company's customers continued to use numeric display pagers.

During the early 1990s, PageNet continued to grow by adding subscribers in existing market regions and by expanding into new geographic territory. As pagers became more popular among a wider range of customers, PageNet's subscriber base grew. Customers included large and small businesses, government agencies, tradesmen, service providers, professionals, models, flight attendants, salespeople, and even expectant fathers. In 1991, the company signed up its one-millionth subscriber.

Up until this time, pagers had been leased or sold by a direct sales force. In 1991, however, Pagenet added an indirect channel of distribution, offering its products and services through retailers and other resellers. By 1993, about 40 percent of PageNet's products were sold through a direct business-to-business sales force. The remaining 60 percent of sales were accomplished through indirect sellers.

During this time, PageNet entered a phase of expansion, which it funded, in part, by going public. An initial public offering (IPO) made in October 1991 raised $116 million. The move made PageNet the first publicly traded independent paging company in the United States. An additional $200 million was subsequently raised through a public debt offering in May 1992.

PageNet entered 13 new territories in a multi-year expansion program initiated in 1992. By the end of 1994, PageNet had operations in virtually every major U.S. market. In entering these new markets, PageNet followed a proven strategy that offered high quality, low cost paging services. PageNet was able to offer lower prices due to its size and the economies of scale it could achieve. For example, PageNet purchased more than a million pagers from Motorola annually. PageNet received a substantial discount on the large order, and, in turn, passed along the savings to its customers. According to a report in Forbes, PageNet's costs per subscriber were approximately 33 percent below the industry average, and prices charged to its subscribers were about 22 percent less than prices charged by its competitors. As a result, PageNet's operating cash flow, a measure commonly used to judge the financial health of paging services, produced a higher margin than could be attained by others.

PageNet also expanded into areas that complemented its paging service, including data transmission and voice messaging services. According to a company statement, any information capable of being digitized could be sent over the PageNet transmission system. Innovative technologies allowed subscribers to take advantage of news and stock quote updates, voice mail, fax forwarding, and data transmission to portable computers. PageNet's PageMail was an automated answering service that let callers hear a pre-recorded announcement and leave a numeric or voice message. Another new service, FaxNow, received and stored faxed transmissions. Subscribers alerted to an incoming fax were able to call from a touch tone phone and direct the fax to any convenient receiving device.

PageNet also became the first company to design and build a 900MHz system, which provided access to newly allocated radio frequencies. This helped to alleviate problems in urban markets caused by frequency congestion. In addition, the company expanded its customer service capability, and, by the end of 1992, PageNet had invested $12 million in a computer system able to handle all customer records.

Expansion continued in 1993 with the construction of two nationwide frequencies. The nationwide frequencies, constructed by identifying unused or little-used frequencies and obtaining the necessary FCC licenses, were added at a cost of $10 million. About 300 new transmitters were also erected, primarily in areas lacking local service. In 1994, the network was strengthened by the addition of 850 transmitters. PageNet's nationwide network has 1,750 transmitters, more than twice as many as any other paging carrier. Each of the two new frequencies held the capacity to serve 600,000 to 800,000 numeric display pagers.

Following its acquisition of the nationwide frequencies, PageNet launched PageNet Nationwide, which offered subscribers the lease of a pager, a personal 800 number, and the ability to receive pages anywhere in the nation without notifying the company of their movement. Although nationwide subscribers for all paging carriers represented only about two percent of paging customers, PageNet expected demand to increase because of its competitive rates and superior digital network. During its first month of availability, 7,700 subscribers signed up for PageNet Nationwide.

In 1993, PageNet reported net revenues of $311.4 million, an increase of 40.3 percent over 1992. In addition, 990,615 new pagers were brought into service. Of these, 70 percent were attributed to sales in areas serviced prior to 1992, indicating the success of the company's plan to increase its presence in existing markets. Such market penetration was associated, in part, with increased sales to nontraditional users; PageNet's 1993 annual report highlighted one innovative use of a PageNet pager by the family of an infant in need of a heart transplant. According to a PageNet statement, the company had a policy of donating paging services to prospective organ recipients.

In early 1994, PageNet entered into an agreement with Ameritech to market its nationwide paging service under the name Ameritech Nationwide. With Ameritech functioning as a national reseller, the subscriber base grew dramatically. By the end of the first quarter of 1994, the company reported more than 32,000 nationwide pagers in service.

That year, PageNet also announced an agreement with Hewlett-Packard to provide wireless data and messaging services for HP's StarLink product. StarLink supplied subscribers with services such as E-mail, voice and data messages, news, sports, and financial information via palmtop and notebook computers. The service was made possible using an innovative device called a PCMCIA receiver card, which could be inserted into a computer enabling it to receive wireless digitized data.

Moreover, PageNet began testing a new voice messaging product, VoiceNow, which was developed in partnership with Motorola. Operating as a portable answering machine small enough to carry in a purse or pocket, VoiceNow was made possible by PageNet's two-way transmission capabilities. Under the new system, the paging terminal received a voice mail message, located the receiver, and then transmitted a digitized voice message. Moreover, VoiceNow offered subscribers the option of replaying a message upon its receipt or storing it for retrieval at a later time. Although the concept of voice paging had emerged in the 1980s, early products proved inconvenient; improved technology, however, such as data compression and digital messaging, had allowed for service that took up less space on the frequency and featured better sound quality for a lower price. PageNet expects VoiceNow to be available during 1995 at about $20 per month, twice the cost of conventional numeric paging but still substantially less than cellular phone service.

In 1994, The Wall Street Journal estimated that pagers were used by approximately seven percent of the U.S. population. Almost 20 million units were in operation, and some analysts expected that number to grow by about 20 percent annually through the 1990s. New York industry analyst Salomon Brothers Inc. expected pager penetration to increase to 8.6 percent of the population by the end of 1994. PageNet estimated that its share of the domestic paging market stood at 16 percent, making it the largest single provider of paging services. The company attributed its success to its ability to simplify the process for consumers and to contain costs.

PageNet reported net revenues for the first quarter of 1994 exceeding $90 million, representing a 32 percent increase over the revenues for the first quarter of the previous year. Although the company reported a net loss of $7.7 million, its operating cash flow of $29.6 million represented an increase of 42.7 percent over the first quarter of 1993. In addition, PageNet products were offered by more than 4,000 resellers.

PageNet expected to continue its practice of growth through expansion and acquisition. In 1994, the company participated in FCC auctions to acquire narrowband personal communications services (PCS) frequencies. PageNet won three nationwide licenses--the maximum allowed. Moreover, Pagenet was anticipating increased sales following its introduction of advanced paging units, slated to debut in late 1994. These units were expected to operate more efficiently than the company's older pagers and to make better use of radio frequencies.

Principal Subsidiaries: Paging Network of St. Louis, Inc.; Paging Network of Louisiana, Inc.; Paging Network of Upstate New York, Inc.; Paging Network of Minnesota, Inc.; Paging Network of Oklahoma, Inc.; Paging Network of South Carolina, Inc.; Paging Network of Tennessee, Inc.; Paging Network of Wisconsin, Inc.; Paging Network of Hartford/Springfield, Inc.