Feature Story

NETWORK SERVICES' ACQUISITION OF TSR WIRELESS IS JUST THE START

An easy-going, relaxed laugh erupts from Brad Scott after he hears this question: What's it like to build an integrated messaging company almost from scratch even as large carriers struggle to survive in a fraying economy?

Scott, president and chief executive of Network Services LLC, seems to welcome the challenge of building a company in the face of adversity. No newcomer to paging/messaging space, Scott has seen the market go through its cycles. The El Segundo, Calif.-based Network Services, founded in 1995, was one of the first to take one-way paging into the retail consumer market, selling pagers to nonbusiness users at Circuit City stores around the country. "We've seen the business come full circle," he says. "Now, the consumer market has started moving away from the paging market."

This hindsight should come in handy as Scott attempts to build a national integrated messaging carrier from the ground up, offering both one-way paging and advanced messaging services to consumers and resellers.

Scott's strategy: to acquire infrastructure and licenses from faltering companies, building his company through consolidation, rather than "organic" growth.

His plans might seem a bit quixotic in light of the current state of the traditional paging industry. Demand for one-way paging has dropped off precipitously in recent years, with carriers rapidly shifting gears into two-way messaging to make up for the loss of tens of thousands of subscribers every quarter. Financial analysts say carriers' new focus is difficult, however, due to several unexpected setbacks, including the fact that demand for two-way messaging isn't growing as rapidly as expected.

"We believe there is opportunity out there right now to acquire other paging companies, other messaging companies that are financially struggling," Scott says. He expects to make acquisition-related announcements in the coming weeks, but won't divulge any details because of confidentiality agreements.

His most high-profile acquisition to date came recently when Network Services acquired most of the assets of the now-defunct TSR Wireless LLC, including its network and one-way paging licenses. TSR Wireless had erected transmitters in 32 states and penetrated 40 major markets. The U.S. Bankruptcy Court in Newark, N.J., approved the asset purchase agreement in late March, stipulating that Network Services would manage the assets of TSR Wireless until the FCC issues a final order transferring the licenses.

TSR Wireless, based in Fort Lee, N.J., filed for bankruptcy late last year, leaving 1,700 employees out of work and some 2.5 million customers uncertain about their service. Engineers have kept the network running, but a large number of TSR Wireless subscribers sought service elsewhere. To regain them, Network Services has launched a campaign to inform customers about the company's acquisition of TSR Wireless' network.

Under the program, current and former TSR Wireless customers can learn about Network Services' integrated messaging offerings via an interactive Web site or from customer service representatives.

As part of the reach-out, Network Services has hired more than 150 new employees and has opened call centers in El Segundo and Pleasanton, Calif., and Fort Lee, N.J. The company plans to hire another 75 customer service agents and other staff over the summer. In addition, it has distributed more than 400,000 mailing inserts to customers throughout the country. The rebranding campaign features the message, "TSR Wireless, now managed by Network Services."

Despite his enthusiasm, Scott is sure to face challenges ahead. Network Services is trying to bridge the old and new messaging worlds. It plans to offer advanced Internet protocol-based messaging services such as wireless e-mail and faxing, voice-over-IP telephony and unified communications, as well as traditional one-way paging.

The company is attempting this feat as larger, more established messaging carriers struggle to survive. The combination of lower-than-expected demand, debt obligations and a rocky economic climate has dealt a heavy blow to providers such as WebLink Wireless Inc. and Arch Wireless Inc.

WebLink recently scaled back its field sales offices, dismissed 15 percent of its workforce and filed for Chapter 11 reorganization. A plan to merge with competitor Metrocall Inc. now is on hold. Meanwhile, Arch is trying to reconfigure its capital structure in an apparent attempt to avoid Chapter 11 reorganization.

Scott contends that most paging/messaging companies are struggling because they are overburdened with debt related to network buildouts and efforts to ramp up the two-way messaging market. He claims that Network Services is in good financial shape for whatever lies ahead, including further acquisitions to build up its network.

"We probably have one of the lowest debt-to-subscriber ratios in the industry today. We are extremely well suited to compete in the marketplace. We do believe there will be additional consolidation in the marketplace and we fully expect to be part of that consolidation by acquiring some of the smaller players," he says.

For many, wireless phones have become the mobile device of choice. What makes Scott think integrated messaging services will survive? He doesn't pretend to have all the answers. Demand for one-way paging is tapering off, but industry insiders expect unified communications and wireless messaging services to heat up over the next four to five years. In fact, the Radicati Group Inc., a Palo Alto, Calif.-based market research firm, predicts that the worldwide market for unified messaging products and services will reach $3.76 billion by year-end 2004.

"We're going into this with our eyes wide open," Scott says.

After all, with eyes wide open, he'll be able to watch any cycles that lie ahead.

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