Subject: [NEXTEL-1] VZ-NXTL PTT Analysis Comparison

From: "havaloc" <[email-masked]>
Date: Mon, 18 Aug 2003 20:21:59 -0000

Event
RBC Performance Comparison of VZ and NXTL Push-to-Talk Services

Investment Opinion

We recently conducted side-by-side performance comparisons of VZ' and
NXTL's push-to-talk (PTT) walkie-talkie services, comparing each
product on the basis of set-up latency, intra-call latency, keypad
usability, and other factors (e.g., list management, idle time,
presence, pricing).

Our initial takeaways based on current product performance are:

1) VZ' PTT service could be a valuable supplementary product to grow
ARPU and drive penetration, though not as much at NXTL's expense as we
previously believed.

2) With anticipated PTT launches by PCS and AT, we believe GSM
providers may be at a temporary time-to-market disadvantage by not
offering walkie-talkie services until well into next year.

3) Greater-than-anticipated intra-call latency of VZ' PTT product
(versus essentially none at NXTL) causes us to be incrementally more
positive on NXTL's competitive positioning. We recently conducted
side-by-side performance comparisons of Verizon's (NYSE: VZ;

Outperform; $36.01; Average Risk) and Nextel's (Nasdaq: NXTL;
Underperform; $17.93; Speculative Risk) push-to-talk (PTT)
walkie-talkie services, comparing each product on the basis of set-up
latency, intra-call latency, keypad usability, and other factors
(e.g., list management, idle time, presence, "floor control" and
overall pricing). Our latency and usability comparisons were measured
by using the PTT alert feature to establish the connection and then
conducting back-and-forth PTT conversations.

Based on how the VZ PTT product currently performs, we believe PTT can
be a valuable supplementary service to potentially grow VZ' ARPU and
increase penetration, though not as much at Nextel's expense as much
as we previously thought as we believe most NXTL users would note a
perceptible difference in intra-call latency. We found other
performance factors either roughly comparable (e.g., keypad usability)
or relatively less meaningful (e.g., set-up latency). Below are our
initial comparisons of the two systems.

Intra-Call Latencies . Our most surprising and significant finding was
that VZ' product exhibits two different types of intra-call latency
that are essentially absent from NXTL's PTT product. Specifically,
during a typical VZ PTT session, we consistently measured up to 1.5
seconds of talk-permit latency (versus usually zero for NXTL) coupled
with an ensuing media latency of up to 1.5 seconds (versus essentially
zero for NXTL). Talk-permit latency is the delay between the time the
PTT button is pressed and the user can start talking, and media
latency is the delay between the time the sender starts talking and
the recipient hears the sender's voice. We measured varying
talk-permit latencies for NXTL, with essentially zero latency during
an active PTT session but occasionally a 0.7-second latency after a
six-second or greater pause had occurred in the conversation.

Set-Up Latency. As expected, we encountered greater set-up latency
with VZ' product. We measured VZ' set-up latency at 5-6 seconds,
versus 0.5-1.5 seconds with NXTL. Since set-up occurs only once during
a given PTT session, we do not believe this latency is as significant
for most users as the intra-call latency.

Keypad Usability . For both VZ and NXTL, we ascertained the minimum
number of key presses required to establish a PTT alert to another
user as well as the number of different navigation keys a user would
have to press. We found both VZ and NXTL easy to use, with VZ offering
a very slight advantage on both metrics (three key presses required
for initiate a PTT alert, versus four for NXTL; and using two
different keys versus four for NXTL), provided the user employs the
PTT buddy list to set up the alert. If the VZ user has to rely on the
phonebook feature rather than the PTT buddy list, this increases the
complexity of establishing a PTT alert (seven key presses are required
using five separate keys) and the comparison shifts markedly in favor
of NXTL.

Idle Time . We measured how long each network maintained a PTT session
if both participants were inactive i.e., did not press the PTT button,
causing the conversation to idle. This comparison favored NXTL, on
whose system we measured 60-65 seconds, versus 20-25 seconds for
Verizon. We are not certain whether this parameter is a function of
the network, the handset, or a combination.

List Management . We found each service has its pro's and con's and
therefore view the comparison as a toss-up. While VZ provides the
capability to manage the PTT buddy list via a Web interface (in fact,
it is required), NXTL has a superior handset interface, in our view. A
disadvantage we found with VZ' interface is that there is no apparent
way to manage the PTT buddy list via the phonebook feature on the
handset, even though users can manage a list of cellular users with
this option. As the primary disadvantage of NXTL's interface we note
that the management of group lists must typically be done by calling
customer care.

Talk vs. Listen Mode: Unique to VZ, the handset screen provides a
visual cue as to whether the user is in talk vs. listen mode. This
way, it is possible to know whether to press the PTT button or to wait
until the other user has finished. We view this as one way to
compensate for the potential confusion about "floor control" that can
arise as a result of VZ' greater latency, and do not view this feature
as necessary for NXTL since its PTT sessions are snappier and lend
themselves, in our view, to less confusion over who is in speak vs.
listen mode.

Presence : Also unique to VZ, the PTT buddy list depicts which users
on the list are active vs. inactive, similar to instant messenger
lists. We know of no such comparable feature with NXTL's service other
than to initiate an alert and wait for the "alert successful" message
or reject tone.

Other Topics:

VZ' Pricing Represents a Premium to NXTL for Small Cellular Buckets
and Discount to NXTL at Large Cellular Buckets.
Comparing VZ' and NXTL's PTT rate plans is difficult on an
apples-to-apples basis as no single rate plan of one carrier includes
the same bundle as that of the other carrier. Nevertheless, we can
approximate the VZ add-on bundle of 1,000 mobile-to-mobile minutes,
unlimited nights and weekends, and unlimited nationwide PTT by noting
that Nextel's Free Incoming plans are offered with an optional $10
add-on that provides unlimited nights and weekends as well as
unlimited nationwide Direct Connect and assuming that 25-40% of total
minutes are incoming. Our conclusion based on current rate plans is
that at monthly access fees of $100 or less, NXTL's service provides
better value, whereas at greater-than-$100 access fees, the balance
begins to shift toward the Verizon offer (the smaller the assumed mix
of incoming minutes, the lower the access cost at which the comparison
shifts in favor of Verizon). Thus, we believe that VZ' PTT offer may
be relatively more appealing to high-ARPU, high-cellular-minute users.
Since this is often typified by white-collar professionals, VZ'
segmentation appears consistent with its initial rollout of a
flip-phone rather than a ruggedized open-face handset.

Impact on NXTL. We believe the perceptible difference in intra-call
latency of the VZ PTT product would represent a switching barrier to
many existing NXTL customers who value the walkie-talkie service. In
addition, for new users who are primarily interested in push-to-talk
and who have an opportunity to trial both systems, we believe NXTL
will have a competitive edge. While we think Verizon clearly has a
usable product that can drive ARPU and penetration, we are
incrementally more positive on NXTL competitive differentiation.

Thoughts for GSM Carriers. We believe GSM carriers could be at a
temporary time-to-market disadvantage as we expect PCS and AT to
launch PTT within the next few months and understand that AWE and
others are further away from launching a comparable service.

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