Subject: [NEXTEL-1] Motorola Flirts With Nextel's Competitors- Walkie-Talkie Feature Could Strain Rivals' Business Relationship

From: [email-masked]
Date: Mon, 14 Jul 2003 12:34:49 -0400

Motorola Flirts With Nextel's Competitors
Walkie-Talkie Feature Could Strain Rivals' Business Relationship
By Yuki Noguchi
Washington Post Staff Writer

Monday, July 14, 2003; Page E01

For the decade that Nextel Communications Inc. and Motorola Inc. have been
together, they've had a relationship worthy of envy. But their longtime
interdependence, from which both profited handsomely, is about to get a lot more
complicated, analysts say. Motorola, in effect, wants to see other people.

When Nextel built its wireless network, it wove Motorola's technology into its
very foundation. Their relationship was exclusive; Nextel bought and sold only
Motorola technology. The fifth-largest wireless phone company in the United States
became Motorola's biggest customer. In short, it was the closest thing to a merger
without an actual merger; it was a symbiotic -- and lucrative -- relationship.

Such relationships are unusual in the business world, where most businesses have
many suppliers.
Reston-based Nextel gets more than 95 percent of its handsets from Motorola. Last
year, Nextel bought $225 million in Motorola goods. The year before, $290 million.

"They have a mutually dependent relationship," said Albert Lin, an analyst with
American Technology Research Inc. of San Francisco. "Motorola owns essentially all
of the technology patents used by Nextel," and Nextel controls 11.1 million users
of Motorola technology, he said.

One product in particular made both of them famous: Nextel championed Motorola's
two-way radio technology that works like a walkie talkie and sold like hotcakes to
contractors, plumbers, electricians and emergency workers who use the phones to
radio other Nextel users without having to dial an entire telephone number. More
than 90 percent of Nextel subscribers use it and are willing to foot higher
monthly bills for it.

But now, Motorola is developing a walkie-talkie technology it hopes to sell to
Nextel competitors. Nextel, according to sources close to the company, is testing
a new, more advanced network technology that could sever its long-standing ties to
Motorola. "They're tied at the hip. But they're both having to make business
decisions" that could distance the two players and mark the end of an era, said
Brian Modoff, an analyst with Deutsche Bank, which has provided investment banking
services to Motorola.

Nextel and Motorola officials deny rumors of major changes between them. "Those
who make those presumptions are jumping to conclusions that are definitely wrong,"
said Audrey Schaefer, a spokeswoman for Nextel. "Our relationship with Nextel has
continually evolved as we have worked together over the last 10 years," said Leif
G. Soderberg, Motorola's director of corporate strategy, responding to questions
by e-mail.

"We expect that the relationship will continue to evolve as the market and
technology environment changes." But the latest brouhaha over Nextel's popular
walkie-talkie feature has shed light on a sticky situation for both companies.
Verizon Wireless, Sprint PCS, Alltel Corp. and others are on the brink, they say,
of rolling out a product that would compete with Nextel's walkie-talkie service.
Motorola, which sells that technology, is therefore in the difficult position of
supplying Nextel's competitors with a technology that could pose a major threat to
its prize customer.

"Everyone is attracted to the push-to-talk technology. So Motorola doesn't want to
be locked away" in an exclusive relationship with Nextel, said Jim Kelleher, an
analyst with Argus Research Co. "It's sort of like instant messaging; there is a
recognition that there will be a worldwide market for it."

In April, Motorola bought Winphoria Networks Inc. of Tewksbury, Mass., a company
that has contracts with three U.S. wireless carriers that plan to offer
push-to-talk products that rival Nextel's. Nextel denies its competitors' me-too
products will pose a real threat but has meanwhile redoubled sales and marketing
efforts to tout its own product.

Tensions over competing walkie talkies are running high: Late last month, Verizon
accused Nextel of illegally obtaining and testing two of its unreleased handsets.
The depositions in that case are set to begin in August. That isn't all. In May,
Motorola submitted a proposal to the Federal Communications Commission that
industry analysts consider a rival proposal to Nextel's own solution to reduce
interference between cellular phone and emergency worker wireless systems.

Nextel is offering to pay $850 million to help relocate wireless systems,
including its own, that interfere with public-safety wireless systems, such as
those used by police and fire department personnel.

That measure that would also benefit Nextel by giving it a desirable and valuable
swath of spectrum in return.
But Motorola's proposal recommends a more modest technical change that would fix
the conflict, but that would not require Nextel to relocate to the part of the
spectrum it wants.

Analysts also point to Motorola's decision to sell Nextel's stock in March as an
indication of a growing rift. Motorola, which was Nextel's largest shareholder,
sold off a little less than a quarter of its Nextel stock and now owns about 9
percent of Nextel's shares.

In addition, Motorola also said it locked in gains on up to 25 million of its
Nextel shares that it plans to sell in five years, Motorola said. The company has
said that after the sales Motorola will still own no less than 6 percent of
Nextel.
"The primary reason [for the stock transaction] was to enhance our cash position,"
said Jennifer Weyrauch, a spokeswoman for Motorola.

As for the public-safety proposal, she said, "that was made in response to a
technical request from the FCC's office of engineering and technology," and wasn't
intended to preempt a Nextel plan.

http://www.washingtonpost.com/wp-dyn/articles/A48905-2003Jul12.html?nav=hptoc_tn

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