June 4, 2001: RCR Wireless News

NETWORK SERVICES READY TO TAKE ON CHALLENGES OF TODAY'S PAGING INDUSTRY

Brad Scott does not think one-way paging is dead.

"We do believe there is still opportunity in paging, in one-way paging," he said. "It is a challenging business. It's certainly not a business that is in a growth mode right now, but it is a low-cost communication method and it is a service that is still useful in the marketplace. It's kind of turning into a low-cost B-to-B (business-to-business) communication device and a price-conscious consumer communication service-so we still believe that there are still plenty of folks out there interested in those services."

Scott is so sure, in fact, that he and his company, Network Services L.L.C., are jumping into the one-way paging business with both feet, ready to take on an industry that is littered with the bankrupt remains of dozens of former paging companies.

"We believe we are in a much stronger position than any of the other players today," Scott said.

And he may very well be right.

Network Services-which was until recently a regional paging carrier covering Arizona, Nevada and California-leapt into the national paging scene in March when it bought the nationwide one-way paging assets of TSR Wireless L.L.C. out of bankruptcy court. Scott said he immediately set his sights on TSR Wireless' assets after hearing of its December collapse.

"We instantly thought that there was an opportunity there," he said. "We instantly thought it was an opportunity and began pursuing it shortly after we heard the announcement."

Scott said he wasn't surprised that TSR Wireless was forced into bankruptcy.

"TSR was the only national, privately held paging company and we found it hard to believe that they could afford to support their retail efforts as well as the aggressive pricing they had in the marketplace," he said. "It's one thing to have a direct relationship with the customer, but it's a whole other animal to try to operate the retail stores.'

The minute TSR Wireless' one-way assets were put up for auction, Network Services took a seat at the table. The company beat out almost 50 other bidders for the nationwide system, paying $6 million for the network. The price was a small one to pay compared with the actual cost of building a nationwide paging network from scratch.

"We were in a position where we were willing to pay cash, and we had the wherewithal to close the transaction," Scott said. "We were ultimately the highest bidder, and the only bidder, quite frankly-the only serious bidder interested in the entire network."

Scott said many of the other bidders were interested in breaking up the network into regional pieces, and few wanted the network as a whole. TSR Wireless' bankruptcy trustees wanted to sell the network in its entirety in order to minimize the damage to TSR Wireless' former customer base.

"I don't think it was possible to break it up," Scott said. "I think it would have been literally impossible." Network Services was awarded the network on March 28, and with it came a big mess.

"We certainly went into triage mode, immediate damage control," Scott said. But, he added, "the network never went off the air."

This, Scott said, was largely due to the efforts of a small group of former TSR Wireless engineers led by Arty Beahm, a former TSR Wireless executive.

"One of the things that we were very pleased with is the engineering team that is led by Arty Beahm," Scott said. "Arty Beahm did a phenomenal job keeping the network operational during the bankruptcy period and kept his team-for the most part-intact, and so we had the luxury of acquiring the network and the network being in very good shape."

Scott said Beahm is now the national vice president of engineering for Network Services.

But once Network Services gained control of TSR Wireless' network, it had to reassure its customers that their paging services would continue.

"Our first effort was to let the customer base and the public know that the network was not going off the air," Scott said.

Network Services began a blitzkrieg marketing campaign, sending out billing stuffers, setting up toll-free numbers, creating three new call centers and hiring on an additional 150 employees to deal with the new network and its customer base. Scott said the company plans to hire on another 75 employees in the next three months in an effort to gain control of the network and its customers.

But the expenses are worth the effort, Scott said, because Network Services is in a position to profit from an industry that is quickly killing off most of its major players. Arch Wireless Inc. recently pulled a complicated business move to deal with its massive debt. WebLink Wireless Inc. filed for Chapter 11 bankruptcy, and Metrocall Inc. has made dire warnings about its financial situation. And all of today's paging companies have warned of staggering decreases in their one-way subscriber base. Other companies, such as Paging Network Inc. and MobileMedia Corp., have already fallen from the paging stage.

But Network Services is ready to take on the challenge of a rapidly declining industry.

"By acquiring the company (TSR Wireless) through a Chapter 7 proceeding, we have the unique opportunity to take all of the assets that were generating revenue and shed the company from all of the burden of the debt and the expenses and the portion of the operation that was pulling it down," Scott said. "We have this unique opportunity to come in, take a company, take their revenue-producing components and restructure them into a company that isn't burdened with the heavy debt. As a company we have probably the lowest debt-to-subscriber ratio of any of the publicly held companies."

Scott said that Network Services won't suffer like the rest of today's paging companies because it isn't saddled with the massive debt required to build out networks and acquire other companies.

"Most of the other players out there, all of their EBITDA (earnings before interest, taxes, depreciation and amortization) is being chewed up by interest and cap-ex (capital expenses)," he said. "We have this unique opportunity that our EBITDA is not chewed up by interest expense and we have little cap-ex expense because we acquired these assets and they were completely built out."

Scott said the problem with most of today's paging companies is that they face a shrinking business market and are no longer able to support their debt with their current revenue stream.

However, he said, "the business itself does produce a very healthy margin if you can shed yourself of the debt. There's still a lot of opportunity out there for companies-and they can be quite strong."

In addition, Scott said Network Services will take a slightly different approach to the business than today's paging carriers. He said the company will focus more on the business market, which in today's economic climate is looking for a low-cost alternative to mobile phones. And, unlike today's paging companies, Network Services will work closely with the nation's resellers.

"We also believe very strongly in the reseller channel," Scott said. "We believe that many of the carriers have pulled away from the reseller channel because of the low ARPU (average revenue per unit), but we still believe that the reseller channel is still a good channel for distribution and we are fully supporting the reseller channel.

"We can do what we do best-which is operate a network-and we can let the resellers deal with what they do best, which is selling and dealing with the customers at what we call the edge, out there on the street."

Scott said Network Services also has a little trick up its sleeve. The company is marketing a variety of messaging products and services to go along with its paging network, including Internet protocol faxing, voice mail and e-mail services, which will page users when an e-mail message is received. In addition, the company is offering a unified messaging service that allows users to access e-mail, voice mail, faxes and wireless devices from a single, Web-based in box.

"Those products have seen very good success," Scott said.

Scott said Network Services, with its streamlined business and unique offerings, is ready to take advantage of an industry that poses a challenge, to say the least.