THE BUSINESS: Voice- and text-paging service
CLOSED: August 1999
PRIMARY CAUSES OF DEATH: Rapid emergence of competitors offering lower-priced or better alternative services; high cost of building a wireless network
An answering machine in your pocket. That's the notion that beguiled Cecil Duffie Jr. and Bill deKay, cofounders of Conxus Communications, based in Greenville, S.C., in 1994. They called it Pocketalk. And they believed that many Americans would welcome the beeperlike device that could convey oral messages.
Five years ago their timing seemed right on the money. Advances in wireless-telecommunications technology were ripe for commercial development. In one well-publicized deal Motorola was pumping more than a billion dollars into Iridium, a satellite-based phone and paging company aiming to span every inch of the earth. At the same time the Federal Communications Commission was obligingly auctioning off about $2 billion worth of untapped airwaves. In October 1994 Duffie and deKay were among the first in line, spending almost $90 million for licenses.
Trouble was, assembling the nationwide infrastructure and technology to support Pocketalk would take more than three years: Duffie and deKay didn't offer Pocketalk until November 1997. At that point Pocketalk hit a market fiercely contested by cell-phone companies that had cut prices by two-thirds since 1995 and offered services that included voice messaging, caller ID, and E-mail access. Pocketalk "was an interesting idea in 1995," says Brian Cotton, director of wireless research at Frost & Sullivan, a marketing consulting company based in Mountain View, Calif. But by 1997, says Cotton, "the demand wasn't there."
If Duffie and deKay were blindsided, it wasn't for lack of expertise in telecommunications. In 1982 they had helped launch Dial Page Inc., a paging and mobile-phone business that went public in 1992 and later merged with NexTel Communications in a deal reportedly valued at $728 million. Both men had done long stints as Dial Page executives, Duffie as chairman and CEO.
Before the emergence of the killer cell-phone market, several heavyweight investors had concluded, along with the two founders, that Conxus was a smart bet. Motorola not only licensed Conxus to use its voice-paging technology and hardware but put its own capital at risk, joining the Chase Manhattan Bank and Glenayre Technologies Inc., among the start-up's lenders. All told, Conxus raised more than $150 million in debt and $130 million in equity.
To implement its far-flung strategy, Conxus sank two-thirds of its capital into assembling a narrow-band network that covered 16 cities in major metropolitan areas stretching from Washington, D.C., to Los Angeles. In late 1998 Conxus claimed 87,000 subscribers, a small fraction of the one million that Duffie says Pocketalk would have required to break even. With nearly 200 workers and average revenues of only $15.50 a month per Pocketalk subscriber, Conxus couldn't compete.
Duffie acknowledges being outflanked by competitors but also attributes his company's demise to the "poor performance" of the Motorola equipment and to delays he says were caused "100%" by the telecommunications giant. When asked to comment, a Motorola spokesperson didn't dispute Duffie's criticism but said, "We were very disappointed that the market didn't embrace the technology as we had anticipated it would."
In early 1999 Conxus introduced a text-based messaging system and a smaller Pocketalk device, but it was too late. In May, Duffie announced that the company was entering Chapter 11 bankruptcy and looking for a buyer.
Conxus stayed afloat for three more months, thanks to some $10 million in interim financing from Motorola. By late summer, though, Motorola had had enough and withdrew its support. On August 23, Conxus notified its customers by -- what else? -- a voice-paging message that in four days Pocketalk would be "cut off." Conxus ceased all operations on August 27.
It wasn't the only audacious telecommunications company caught in a financial bind. To protect itself from creditors while it reorganized, Iridium had entered Chapter 11 two weeks before Conxus called it quits.