Subject: [NEXTEL-1] Nextel May Soon Have Walkie-Talkie Competition

From: [email-masked]
Date: Thu, 26 Jun 2003 11:57:12 -0400

Nextel May Soon Have Walkie-Talkie Competition

By Yuki Noguchi
Washington Post Staff Writer
Thursday, June 26, 2003; Page E05

In the fierce battle among wireless phone companies, Nextel Communications Inc.
has had one unique advantage: its walkie-talkie phones. The dual-use phones are
especially popular with construction workers, taxicab drivers, emergency workers
and others who are willing to pay more for a simple way to radio others.

But Nextel may be about to lose that edge, as a phalanx of its competitors line up
to offer similar services. If they succeed, Nextel could become subject to the
same hard and costly realities as the rest of the wireless industry: price
competition and higher customer turnover.

Verizon Wireless, the largest cell-phone operator, with 33.3 million subscribers,
may launch its service as early as next month, according to some analysts and
other industry watchers, although Verizon officials declined to comment. Sprint
PCS and Alltel Corp. plan to introduce similar push-to-talk features sometime
later this year. AT&T Wireless and Cingular Wireless said they will launch service
next year.

So far, Nextel's proprietary technology -- used by more than 90 percent of its
customers -- has kept the Reston-based company relatively sheltered from some of
the vicious effects of competition. It's been profitable for a year and is viewed
as one of the most successful players in the wireless industry because it has a
high-paying and loyal base of business customers -- the company has more than 10
million users, many of whom have signed up for the service in groups.

Competitors "have seen what Nextel has done, and they want it, too," said Jane
Zweig, chief executive of Wheaton-based market research firm the Shosteck Group.
But the competing firms are all rigorously tight-lipped about products and
strategy. "They don't want to tip off Nextel on what they're going to do."

Nextel officials brush off the threat. The others' products operate with several
seconds of delay to set up the initial call, a flaw that current Nextel users
won't tolerate, they say.

"The difference is in the foundation of our technology. Our network [continuously]
tracks the locations of the phones," so when users press their walkie-talkie
buttons, the call goes immediately through, said Drew Caplan, senior vice
president of network services for Nextel. By comparison, other networks are
configured to "go to sleep" when a phone is not in use, so it takes a couple to
seconds for the network to find a phone and put radio calls through, he said. Some
analysts, however, believe this could be the start of an erosion process for
Nextel.

Over the short term, Nextel won't have many problems retaining its customers,
because of that critical delay issue, said Andrew Cole, a senior vice president of
Adventis Corp., a consulting firm that has tested the other companies' products.

But that advantage could be temporary. Eventually, Nextel's business could slow,
as prospective customers consider other carriers, and sooner or later the
competition will shave the delay off their existing products, Cole said.

"When a company's differentiator starts to erode either partially or entirely,
that has to be negative," in this case for Nextel, said Jonathan Atkin, an analyst
with RBC Capital Markets. Even if its takes competitors a while to catch up,
Nextel will have to search for new ways to make itself different -- and more
desirable -- to its customers.

Making matters potentially worse for Nextel: A federal regulation set to take
effect starting Nov. 24 will allow cellular-phone customers to keep their numbers
when they switch providers -- making it easier for customers to defect.

For its part, Nextel has been turning up the marketing volume on the defense.

Earlier this month, Nextel began allowing customers to radio each other
nationally. It is running a radio advertisement touting the quickness of its
service. Also, in recent meetings with investors, it devoted time to explaining
the technical advantages of its services over competitors, according to attendees.

Nextel is racing to sign up as many business customers as it can, before the
floodgates open, said Susan Kalla, an analyst with Friedman, Billings, Ramsey &
Co.

"They want to lock them in as soon as possible," she said. It makes it tougher for
the competition, which will then have to "unsell" customers on Nextel before
selling them on their own service, she said. That sales cycle could take six
months or more, she said, which gives Nextel some time. Still, Nextel has to be
concerned, she said.

"That would be the single most important thing that keeps them up at night."

http://www.washingtonpost.com/wp-dyn/articles/A33781-2003Jun25.html

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