Motient Comes Calling

Motient (www.motient.com) is tired of being on the outside looking in. The wireless data carrier thinks it has the key to unlocking the wireless enterprise.

“Wireless e-mail is what opens the door for us with business customers,” said Walt Purnell, Motient president & CEO. “Once we get into the office, the business will change, and we will change with it. (Enterprise users) want to get at other things on the Internet and access their corporate intranets with wireless. That's where things are going.”

Motient's current offerings include eLink enhanced, 2-way e-mail service and BlackBerry (www.blackberry.net) By Motient. ELink acts like a paging service that alerts users to new e-mails, but users don't have to establish new e-mail addresses to use the service. BlackBerry By Motient also allows users to manage e-mail better by providing access to e-mail address books, offering immediate or delayed replies and specified routing.

How and when Motient will move beyond e-mail remains to be seen. The concept of the wireless corporate enterprise has carriers, network-equipment vendors and device manufacturers salivating. The jury still is out where customers are concerned.

Also, Motient still has to overcome a host of other issues: its well-heeled competition, its reputation as a low-speed service for techies, the ominous clouds of 3G gathering on the horizon and its own financial health.

Remember Ardis?

Based on Motorola Datatek technology (www.motorola.com), Motient's network is one of the oldest and most widespread wireless data infrastructures. It started out as the Ardis network in the early 1980s when Motorola custom-built the solution for IBM's (www.ibm.com) nationally distributed technical field-service crew. Ardis later became part of the burgeoning IBM Global Private Network, although Motorola remained an investor.

In the early 1990s, when CDPD technology caught the eye of fast-growing cellular companies, IBM tried to reposition Ardis as a public wireless data network but never attained the mainstream appeal it was looking for.

IBM later diluted its ownership in Ardis by adding new large telecom investors such as Hughes Electronics (www.hughes.com). In 1998, it sold its entire majority position to American Mobile Satellite Corporation (AMSC), a firm with holdings in satellite and radio. Last year, AMSC sought to modernize its name and emphasize its mobile capabilities — such as Ardis — by renaming itself Motient.

With a 19.2kb/s access architecture that has a presence in 430 of the top 500 U.S. wireless markets, Motient has a network asset it sees as a strategic weapon. The slow acceptance of wireless data overall is a mixed blessing for the company. It has not lost ground to bigger wireless firms because they mostly have failed to exploit data, but its low transmission speeds probably would not be acceptable to enterprise users maintaining ongoing Internet access. Therein lies a hitch in Motient's planned move from wireless e-mail to wireless enterprise carrier. Potential competition is rife.

Some owners of enterprise networks have been adopting wireless LAN technology that has ushered in the potential for large corporate enterprises to use wireless as the dominant form of connectivity. These systems can have a total capacity of up to 11Mb/s for an entire enterprise.

“The adoption of wireless LANs is a key trend toward creating a wireless enterprise market,” said Darryl Sterling, MainSpring wireless Internet analyst (www.mainspring.com).

Wireless LAN companies also have worked hard to integrate their own standards with Ethernet. The opening of technologies is significant to the spread of wireless Internet access in the enterprise, Sterling said. It also creates a high-speed alternative to Motient's comparatively low-speed access.

The tally of competitive forces does not stop there. Many mobile wireless carriers are looking at 3G technology to deliver them into the era of wireless Internet usage. Although 3G development already has been complicated by industry-standards debate and questions of spectrum availability, it represents a wholesale move into and beyond the wireless-data realm that Motient has been playing in for years.

Who's Afraid of 3G?

Purnell is not scared of 3G.

“I'm going to jump right over 3G,” he said.

Purnell doesn't think 3G leverages Motient's existing base of users and devices. He still sees a more obvious need for lower-speed applications rather than pie-in-the-sky 3G uses.

“No one wants full-motion video over a RIM (www.rim.com) device, but they will still want access to the Internet,” Purnell said.

Still, Motient is committed to upgrading its access speeds in its biggest cities. Purnell said its own high-speed overlays would be installed in those markets over the next few years, “providing plenty of capacity for the foreseeable future.”

The promise of 3G and wireless LAN solutions already has affected Motient's ability to sell its services.

“The biggest challenge in selling our service is people making no decision because they want to figure out what's coming next in terms of wireless data,” Purnell said, adding that the company's argument against 3G now is becoming a standard part of every sales call.

Motient actually sees its most direct near-term competitor as one with a network approach that most resembles its own. Cingular Interactive (www.bellsouthwd.com), the wireless data division of the cellular giant and operator of a network based on Ericsson's (www.ericsson.com) Mobitext technology, is a “pretty serious competitor, with a good technology,” Purnell said.

Although Purnell claims the Datatek technology can perform in-building more reliably than Mobitext does, he is somewhat troubled that Cingular Interactive has “a name recognition that we don't have.”

“If Motient is starting to tell its story, what has been holding it up?” asked Phil Redman, Gartner Group (www.thegartnergroup.com) senior analyst. “They've had a product for a long time, and Cingular has been more delayed in deploying its technology. If Motient doesn't do a better job of marketing its story, it may not survive for long.”

Redman also said Cingular Interactive has been more cognizant of competition from big wireless companies and their 3G plans than Motient has.

Device Agnostic

One area where Purnell may deserve credit for increasing the value of Motient's network is by opening it up to a variety of devices.

“Ardis was too hard on people,” Purnell admitted. “The devices were too expensive, and the applications too hard to understand. Now, the devices we work with are cheap and getting cheaper. Over 50 devices work on our network.”

Along with BlackBerry and other RIM devices, Motient also has forged an agreement with Palm to allow the Palm V (www.palm.com) to work on its network. The result should be a “Palm By Motient” service later this year, according to Dave Dennis, Motient product line manager. The affiliations with device makers such as RIM also play into Motient's traditional emphasis on marketing its services to vertical industry markets. The BlackBerry and like devices have become popular wholesale purchases for large corporate accounts in such markets as law and transportation, Dennis said.

However, Purnell has made no secret of his wish to transition Motient from a provider of niche services for specific vertical markets to a full-fledged wireless data carrier for all enterprises. E-mail may get Motient inside the door, but the next step is selling the software integration needed to create and manage a true wireless enterprise.

Money Matters

If Motient is strategically on the move, its financial condition remains a source of concern. In its 2Q01 earnings report, subscriber growth aside, the company stated that it continues to be in negative EBITDA territory. Although its EBITDA loss of $16.4 million was smaller than 2Q00, its consolidated net loss actually grew from $40.4 million to $65.5 million over the same period.

Purnell and W. Bart Snell, senior vice president & CFO, have asserted that the growth in net loss was due in part to downsizing among field-service accounts and also to an inventory write-down related to a surplus of RIM devices the company had on hand at the end of its 2000 fiscal year — well before the recent strong growth in BlackBerry devices.

Motient's stock price has been floating below $1 recently, a fact that cannot please a list of investors that includes Motorola, AT&T Wireless (www.attws.com) and Hughes Electronics. Yet, Motient also is not in a position to search for new investors because it would dilute the position of existing investors.

Instead, Purnell said Motient's primary method of raising cash for expansion efforts is to sell shares in its XM Satellite Radio division (www.xmradio.com). XM Satellite Radio proved an instrumental asset in helping to fund the $200 million Rare Medium deal. The deal was constructed through a combination of $13 million in cash, issuance of a new class of Motient stock and by trading roughly 9 million XM Satellite shares for Rare Medium shares. (See “Adding Expertise” sidebar.)

The odd structure of the acquisition apparently did not escape the attention of Rare Medium shareholders, some of whom complained that they were not receiving enough profits. Several lawsuits are pending while Motient and Rare Medium work to close the deal by next month.

Motient certainly must maintain financial health to sneak by wireless giants with big 3G plans. The Rare Medium deal, although intended to help Motient gain software expertise, also could help in that regard, because Rare Medium still had more than $100 million in available cash earlier this year. Yet, Motient will need even more liquidity to pay for the upgrades necessary to survive in 3G's shadow.

Many people think Motient represents the best of what wireless data used to be — a niche service that was useful to a handful of people. Although Motient is on a mission to explode out of that niche, it is a dark horse in many respects. It also is looking for salvation in a new business that everyone is interested in, but no one has figured out yet — wireless enterprise. Providers of 3G can afford to wait for this market to develop. Can Motient?

Growing Customers

Despite a competitive picture crowded with multiple players and new technologies, Motient's (www.motient.com) network still has strategic value. In its 2Q01 earnings report, the company stated that its network now supports 250,000 users, having grown by about 24,000 users during the quarter. Also, Motient signed up about 24,500 subscribers to its e-mail services, representing 35% growth in that segment alone, demonstrating that Motient's customers like the idea of eLink and BlackBerry (www.blackberry.net).

“E-mail is selling now, and when you combine it with something like BlackBerry as a tightly integrated solution, there is a clear value to the end user,” said Darryl Sterling, MainSpring (www.mainspring.com) wireless Internet analyst. Indeed, most of the 31,500 new user devices added to Motient's network last quarter were RIM (www.rim.com) BlackBerry units.

Adding Expertise

Motient's (www.motient.com) pending acquisition of Rare Medium Group, a software consulting and Web-development firm (www.raremedium.com), is an important initial move toward defining its wireless-enterprise strategy, according to Walt Purnell, Motient president & CEO.

With Rare Medium's expertise, Motient is trying to drive home the idea that the wireless enterprise starts with back-office-applications integration that makes wireless more than just a service an individual uses while he is on the premises. It is a point that hits home with analysts who believe enterprise users would be interested in the concept of wireless in the enterprise if they knew what that meant.

“Business users haven't been looking at (wireless enterprise applications) the right way,” said Darryl Sterling, MainSpring wireless Internet analyst (www.mainspring.com).

“Service providers, having direct involvement in developing those applications for their customers, can change what business users expect from wireless,” he said.

The Rare Medium acquisition also provided a shot in the arm for Motient's competitive image. Its stock price surged after the announcement, although it since has fallen back, and analysts speculated at the time whether other acquisitions or partnerships were imminent. Motient was mentioned at one point as a potential suitor for the properties of bankrupt 2-way paging provider Metrocall — Purnell eventually denied (www.storefront.metrocall.com) the rumor. Still, Purnell said Motient is working on other relationships.