Paging has begun to penetrate the mainstream, consumer market in many Latin American markets. While there are significant differences in these markets, this general trend is an opportunity for paging service providers to increase their subscriber base at a faster pace, in particular, with the introduction of advanced messaging networks such as NPCS. Here, Mr. Czarnecki of BIA Consulting presents the results of the research done for PCIA, the new Latin American Messaging Association.
One-way paging will continue to satisfy the needs of many customers, while the introduction of narrowband personal communications services (NPGS - two-way and voice paging) is expected to make a significant impact on the paging market. One-way paging will likely find new markets as price points for service and equipment continue to decline. However, as charges are generally fixed irrespective of usage levels, paging service costs can easily be controlled and monitored; and pagers, unlike mobile phones, can be supplied to staff without any risk of high costs being incurred. In addition, paging services enable the regular, timely and discreet delivery of dynamic information. This can be extremely useful to users, for example, in the financial services industry, where timely information on market price movements can be extremely important. Challenge for Conventional Paging One-way paging in Latin America will face an increasingly competitive and challenging market. Some of our concerns revolve around the need for industry consolidation, increasing price competition, rising costs of subscriber acquisition, declining Average Monthly Revenue Per Unit (ARPUs) and the ability of paging providers to increase subscriber growth. An additional concern is product cannibalisation from competing wireless services, including NPCS in the near future. In short, key challenges for the paging industry include: · Competition from cellular services and new broadband PCS carriers (particularly in light of the increasing adoption of 'calling party pays' in Latin America); · Competition within the messaging industry from new NPCS carriers; · A relatively low level of acceptance among 'white collar' and upper-income markets; and, · Increasing spectrum needs of wireless messaging carriers as subscriber and traffic levels grow. On the bright side, many major Latin American paging organisations are attempting to reinvent themselves to better meet these competitive challenges. The movement is being driven in part by the capital markets, which have become much more discerning and selective. There is widespread recognition that the paging industry has changed, and the industry growth rate, while still strong, will change over time. The amount of capital it takes to be a major player in Latin American paging has also changed, particularly with the coming entrance of narrowband personal communications services. As a result, the paging industry in Latin America is seeing basic structural changes. Latin America's paging industry is maturing from a 'mom and pop' structured growth phase, to a consolidating corporate culture that prioritises positive free cash flow and profitable growth. Carriers will be building advanced messaging networks to offer services that bring in more revenue. Many carriers are reorganising their operations for better cash efficiency and are consolidating to command greater economies of scale. We are also encouraged by the fact that strong management teams have entered the business in several key markets. These management teams understand that in a competitive environment, long-term sustainability is dependent on profitability. The main priorities now are expanding paging penetration and market growth, generating market share, achieving profitability and generating cash flow. The Conventional Paging Market Structure Three types of pagers are currently available in the Latin American one-way market: alphanumeric pagers account for the overwhelming portion of units in service - in excess of 90% - and numeric and tone pagers account for the rest of pagers in services. The use of alphanumeric pagers in Latin America is attractive for several reasons, including the proportion of high-end users, the lack of history of numeric use, and the poor overall telecommunications networks. This same logic bodes well for two-way NPCS service. As technical issues are resolved and competition forces down prices, the market for these services should grow actively. However, there are also other factors that may be limiting the growth of alphanumeric paging in Latin America. First, fixed line telephone networks in much of the region are still not readily accessible. Further, input devices (PC/modem combinations or a custom page-entry device designed to enter alphanumeric paging) are not common in Latin America. Therefore, callers usually have to suffer the inconvenience of going through an operator to input their messages. This is time-consuming, labour-intensive and lacks privacy. To be successful, the input device needs to be easily available and simple to operate. Nearly every country in the region has operators introducing high-speed paging services. The advent of high-speed paging protocols such as FLEX presents Latin American paging operators with the opportunity to greatly increase network capacity and enhance their service offerings. A partial list of FLEX carriers include Comunicaciones Mtel, Digitel, Iusacel and TelMex in Mexico; Skytel and Radiomensaje in Argentina; Mobitel, PageNet, PCS and Victori in Brazil; Batelco and Forsythe Communications in the Bahamas; Radiofon, Skytel, TAS, Espectracom and Comunicaciones de La Sabana in Colombia; Skytel Dominicana and TriCorn in the Dominican Republic; Skytel in Guatemala and Mexico; Alfanumeric S.A. in Nicaragua; Amtel, Cellular One, and PRTC in Puerto Rico; and Bip Bip in Uruguay. Messaging Market Forecasts In 1997, Latin America had over 2.65 million pagers in service. By the year 2001, BIA expects that number to grow to over 5.7 million pagers in service (including both conventional paging and narrowband PCS). We expect significant growth in the region's wireless messaging markets through the year 2003, by which time the paging market could grow to just over 9.9 million units in service, driven largely by the widespread advent of NPCS services throughout the region. By 2003, the overall Latin American/Caribbean messaging market should reach a total population penetration of over 1.8%. We expect the overall mobile messaging market to be revitalised by the future introduction of NPCS services. Prospects for NPCS Narrowband personal communications services are being touted as the future of the paging industry. The anticipated launch of pilot narrowband personal communications services networks in the Latin America/Caribbean region has signalled the start of a new phase of paging in the region. The increased functionality of voice and two-way messaging devices will spur demand throughout the mobile messaging market. The ability to easily create and send messages from a pager-like device will enhance the demand for two-way messaging. Voice messaging is very likely to have high consumer appeal. Widespread familiarity with voice service, combined with expected pricing near the level of traditional paging service should allow voice messaging to develop a significant market. Several carriers are developing voice-messaging capabilities, with some currently being beta tested. We expect commercial operation to commence in the Americas late in 1998 or early in 1999. We are also optimistic about two-way messaging (acknowledgement paging) if the price point is sufficiently competitive. While we are concerned that NPCS service may directly compete with one-way conventional paging market base, there may be ample room for both to grow in Latin America. This may exacerbate problems in the one-way industry where margins are already shrinking and market fragmentation is widespread. On the other hand, the paging market is so underpenetrated at present that the entrance of NPCS service could finally stimulate the overall market for mobile messaging services - including a less expensive conventional paging offering. For this reason, we feel that both conventional paging and NPCS services will see continued growth in the 1998-2003 forecast period. Operator Strategies Latin American paging operators are faced with potentially conflicting objectives. On the one hand, there is a need to reduce costs in order to lower prices to hold off the threat from cellular and PCS providers. On the other hand, the wireless messaging industry must find a way to increase their revenue per subscriber, while continuing to encourage and support increases in usage. Paging operators are considering a number of possible strategies to stimulate usage and growth in both the business and consumer markets. Business users still account for the majority of paging subscribers and the bulk of paging service revenues. As a result, it is in the industry's best interest to retain current business paging subscribers, to increase revenues per business subscriber and, where possible, to attract new business subscribers. This can be achieved by encouraging greater use of the pager and by developing new subscription services. To stimulate usage, operators must differentiate their service and 'reinvent' the perception of paging services in the Latin American market. In order to introduce these services successfully, the perception of the pager as a device for receiving information as well as for relaying incoming messages needs to be altered radically, to reflect its use as an information access unit. Perhaps the most significant strategy that needs to be adopted by all operators is to increase awareness of paging services and to communicate the benefits of the service to potential users. Conclusion Paging will continue to be a rapidly growing industry in Latin America and the Caribbean. Certain markets display greater growth possibilities than others, requiring the potential owner, investor or operator to select their markets carefully. Still, intense expansion in developing markets, the advent of new technologies, and the diversification of distribution to expand consumer acceptance, all reveal an industry still exploring its boundaries. To remain competitive amidst this explosion of growth, the paging industry must build on its core strengths. These core strengths include the ability to offer low-cost service with high reliability, using a small, lightweight device. At the same time, carriers must develop enhanced and advanced messaging services to serve a diversified and demanding clientele. The ability to balance these roles while continuing to position paging as a user-friendly service will prove crucial as the paging industry continues down the road of growth and expansion. The region's paging industry should continue to achieve overall market growth. The ongoing reorganisation of operations for better cash efficiency is encouraging, as is the beginnings of industry consolidation to command greater economies of scale. However, the pre-eminent concern for the industry is to expand the overall size of the market, as well as to create a value proposition that will open new market segments. The introduction of advanced messaging networks - including NPCS - will allow the provision of services that bring in more revenue, and will likely stimulate the growth of both conventional and advanced messaging. The region's messaging industry must now focus on its long-term sustainability, which is dependent on generating market growth, creating market share, achieving profitability and generating cash flow.