Shaky business plan steers carrier straight into financial crisis

OmniSky's unstable business plan is the likely culprit behind its seemingly imminent demise, but its financial problems could portend rocky times for other wireless Internet service resellers such as GoAmerica Communications.

OmniSky was supposed to file its third-quarter financial report last week but reportedly asked securities officials for more time. Chairman and CEO Patrick McVeigh stated the company's outlook has been adversely affected by the continued deterioration in the capital markets since Sept. 11 and that it currently is evaluating the potential benefits of a sale, reorganization or other form of restructuring under the federal bankruptcy code.

No officials were available to be interviewed from OmniSky, which has set up a general recording saying the company can respond to a limited number of questions and comments.

One problem for the company seems clear: After spending a lot of time and money marketing to consumers, OmniSky had difficulty when it tried to switch gears to target enterprises. On the other hand, GoAmerica always has kept its wireless e-mail and other service offerings focused on enterprises.

“I can't think of a single business customer we lost to OmniSky,” said Aaron Dobrinsky, chairman and CEO of GoAmerica. “They have been very consumer-focused, with mostly content-based deals, whereas ours have been distribution based.”

Indeed, Omnisky has content deals with Microsoft, Handspring and Hewlett-Packard. GoAmerica has struck distribution relationships with Sony, IBM, EDS and HP.

“GoAmerica is more of a service provider of other branded names [than] OmniSky, which tried to build a big brand and didn't end up with very much technology or brand awareness,” said Barney Dewey, consultant for Andrew Seybold Group.

GoAmerica's customer care center has been fielding a lot of calls from OmniSky customers who have been having trouble with their devices, Dobrinsky said. GoAmerica has decided to waive the activation fee for OmniSky customers who switch to its service.

However, the companies have different network models. OmniSky operates exclusively on AT&T Wireless' cellular digital packet data (CDPD) network, while GoAmerica operates on Motient, CDPD, Mobitex and Rogers AT&T's GPRS network in Canada.

While OmniSky and GoAmerica have pursued different business models, some analysts predict the OmniSky situation is a harbinger of things to come in the wireless data and personal digital assistant (PDA) space.

“I don't expect this to be an isolated situation, and I expect it to hit other similar companies,” said Eddie Hold, analyst for Current Analysis. “The market has moved on from PDA connectivity. The PDA is not compelling enough for consumers to pay between $50 and $60 per month.”

Dobrinsky believes carriers remain eager to strike reselling agreements with GoAmerica despite any market concern regarding PDAs.

“They have to look at their core competencies,” he said. “When it comes to PDAs and laptops, that is not it, so they rely on us.”