Subject: [NEXTEL-1] Watch out for Nexthell

From: [email-masked]
Date: Tue, 24 Jun 2003 22:46:41 -0400

Watch out for Nexthell

"Push to talk" has boosted growth. But other firms are getting ready to sell
walkie-talkies soon.
June 24, 2003: 2:17 PM EDT
By Paul R. La Monica, CNN/Money Senior Writer

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NEW YORK (CNN/Money) - Nextel's walkie-talkie phones are hot.

You've seen the commercials with Dennis Franz. You've heard people with them in
elevators carrying on loud conversations. (Beep-beep!)

Nextel's unique Direct Connect feature has helped the company add subscribers at a
time when competitors have struggled. What's more, the average monthly revenue per
user (ARPU) for Nextel customers in the first quarter was $65, well above average.

As a result, shares of Nextel (NXTL: Research, Estimates) have surged 53 percent
since March 11 and recently hit a 2-year high. But that run-up doesn't factor in
the risks Nextel faces.

Nextel will soon have competition
Nextel has been unique in the wireless world, but that won't be the case for much
longer. The phones feature a two-way radio service that allows users to simply
push a button on the side of the phone which enables them to instantly talk to
other Nextel users that have the Direct Connect service. It's basically a fancy
walkie-talkie.

Verizon Wireless is set to launch its own two-way radio service soon. AT&T
Wireless and Sprint PCS have similar plans.

Recognizing the threat, Nextel announced on Friday that it had received trademark
approval for the term Push To Talk and its abbreviation PTT.

But Drake Johnstone, who follows Nextel for Davenport & Co and has a "sell" rating
on the company, said that the trademark won't help much, and that competitors
simply will come up with another name.

Of course, Nextel has the strength of having been alone in this niche for years,
and Verizon and others likely will target consumers rather than go after Nextel's
business base, said David Chamberlain, an analyst with telecom research firm Probe
Group.

But there are other problems. Though debt is down from a year ago, it's still high
at $12 billion.

In addition, Johnstone said that Nextel has yet to upgrade its network to enable
faster transmission of data. He worries that if Nextel doesn't upgrade, it risks
losing corporate customers to the likes of AT&T Wireless, Cingular and T-Mobile,
which have faster networks.

And if it does commit to an upgrade, that would require more debt. "They'll have
$17 billion to $18 billion in debt and instead of positive cash flows they'll have
negative cash flows," Johnstone said. "Investors have blinders on."

Big investors trimming their stakes
Some of Nextel's strategic investors have been reducing their stakes. Motorola,
which manufactures the walkie-talkie phones for Nextel, sold 25 million shares of
Nextel in March. Motorola still owns 83 million shares, about a 9 percent stake.

Also in March, Nextel announced that billionaire Craig McCaw, who invested more
than $1 billion in Nextel in 1995, was reducing his stake to less than 5 percent.
He had controlled more than 10 percent as recently as two years ago.

David Hoover, an analyst with Precursor Group, an independent research firm that
focuses on the telecom industry, said that investors should not overlook those
moves.

After all, Nextel is relying on satellites owned by McCaw to launch a global
version of Direct Connect and Motorola is Nextel's key supplier. "Nextel is
understating the negative effects of these sales," Hoover said.

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Hoover added that even though Nextel is doing well now, it would probably need to
sell out to a larger competitor in order to be able to survive for the long-term
because it will be tough for it to come up with the money to keep upgrading its
network.

If you're looking for one more reason why Nextel could be heading for some
trouble, consider this. The company recently announced that it was ponying up an
undisclosed amount of cash to become the new lead sponsor for Nascar, replacing
RJR Nabisco's Winston brand of cigarettes.

And as my colleague Chris Isidore has pointed out in his SportsBiz column, public
companies have often fallen on rough times after they've decided to slap their
corporate name on something sports related.

http://money.cnn.com/2003/06/24/technology/techinvestor/lamonica/

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