Subject: [NEXTEL-1] Nextel Shares Cool on Fed's Push-to-Talk Probe

From: Marcelrf <[email-masked]>
Date: Thu, 26 Feb 2004 16:50:41 -0500

Nextel Shares Cool on Fed's Push-to-Talk Probe
By Scott Moritz
TheStreet.com Senior Writer
2/26/2004 3:18 PM EST
URL: http://www.thestreet.com/tech/scottmoritz/10145774.html

Nextel (NXTL:Nasdaq) investors felt a chill as federal antitrust
officials turn some attention to the walkie-talkie market.

Shares of the Reston, Va., cell-phone service provider fell 72 cents, or
2.7%, to $25.70 Thursday as Nextel complied with a
Justice Department request for information. Rival Verizon Wireless and
equipment supplier Motorola (MOT:NYSE) also
were reportedly supplying documents to the antitrust division heading
the DOJ inquiry.

The regulators are focused on Nextel's signature "push-to-talk" two-way
radio technology, which has been instrumental to the
company's success in niche markets like fleet dispatching and technical
team coordination. Notably, Verizon and Sprint PCS'
(PCS:NYSE) effectiveness with their own walkie-talkie feature has been
limited and judged technologically inferior.

Observers say there may be any number of antitrust issues involved,
including a legal interest in the terms of a recent settlement
reached between Nextel and Verizon, or the potential collusion between
Nextel and Motorola to bar rivals from the market
and even one presumed parallel to AOL's former monopoly of instant
messenger communication.

Whatever the case, Wall Street is well aware that Nextel's walkie-talkie
feature is a vital edge in one of tech's most competitive
markets. The direct connect function has helped Nextel achieve
industry-leading customer loyalty, the highest revenue-per-user
levels and strong profit as some peers flail away simply trying to add
more subscribers than they lose.

Representatives at Nextel and Motorola would only say their companies
cooperated with authorities. A DOJ spokeswoman
had no comment, and a Verizon rep did not immediately return calls for
comment.

But while the participants were mum, analysts and industry experts were
busy offering cautions and speculation.

The antitrust inquiry was part of the rationale for CSFB analyst Lara
Warner's downgrade of Nextel on Thursday. Warner
lowered her rating to neutral from buy, citing Nextel's high valuation
and downside risk to the company's dominance of
push-to-talk.

And in a note to clients Thursday, Bear Stearns analyst Phil Cusick
suggested that Nextel's direct connect subscribers could
represent a walled garden of sorts, akin to the millions of AOL IM
users. As part of the conditions of the merger between
AOL and Time Warner (TWX:NYSE) , the Federal Communications Commission
required AOL to create an industry
standard for IM, opening the doors to competing services as the
technology evolved.

Antitrust experts said they doubted Nextel's dominance of direct connect
represented a monopoly, but they point out that
when Motorola and Nextel joined forces in push-to-talk in the mid-'90s,
the DOJ intervened to assure that rivals wouldn't be
blocked. Regulators resolved the matter by limiting Nextel's two-way
radio spectrum and reserving space for competitors.

Former Justice Department attorney Charles Biggio isn't surprised to see
the antitrust folks involved again.

"They've had some interest in this market for a few years. And they
clearly seem to be monitoring the competitive issues," said
Biggio, at attorney with Akin Gump Strauss Hauer & Feld.

Biggio says the DOJ may simply want to know the terms of the settlement
reached between Verizon and Nextel. Last summer,
Verizon sued Nextel accusing the No. 5 wireless company of using two
prototype "push-to-talk" phones to gather sensitive
information about Verizon's network operations.

Given the growing importance of the walkie-talkie feature, the Justice
Department is likely to try and squash any exclusive
arrangements between controlling players. Nextel, the walkie-talkie
standard bearer, has more than a little at stake, no matter
what the outcome.

http://www.thestreet.com/pf/tech/scottmoritz/10145774.html
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