Subject: [NEXTEL-1] Nextel close to casting off the iDen shackles at last Published: Thursday 15 April, 2004

From: [email-masked]
Date: Tue, 20 Apr 2004 20:30:40 -0400

Nextel close to casting off the iDen shackles at last Published:
Thursday 15 April, 2004

Just as they claim to be coming out of their ‘nuclear winter’, the US
cellcos are hardly being given the luxury of enjoying their recovering
markets, but are instead being plunged into a period of intense
disruption at the hands of the markets and the FCC. The merger of
Cingular Wireless and AT&T Wireless, the introduction of local number
portability, the incursions of Wi-Fi and other broadband wireless
technologies, and the increasingly liberal approach of the FCC towards
cellular alternatives, have all shaken the business plans of the big
players. Now they face the threat that Nextel, only fifth of the big six
but the most aggressive and high margin of them all, could receive a
major boost to its third generation ambitions with permission to
reorganize its scattered spectrum to implement a whole range of new
platforms.

After almost three years of debate, the FCC is close to a decision on
the so-called Consensus Plan, proposed by Nextel to eliminate
interference caused by FCC rules that enabled the cellco to operate in
channels adjoining public services frequencies. Nextel has been
campaigning to swap the offending bands (16MHz of spectrum in the
700MHz, 800MHz and 900MHz bands) for an equivalent amount of new space
in the 800MHz and 1.9GHz spectrum for cellphones, for a charge of around
$850m. The advantage for its future plans would be to consolidate many
of its frequencies and enable it to implement CDMA or W-CDMA as an
upgrade to its current iDen network, which is running out of steam but
which is the only platform capable of running effectively on Nextel’s
currently scattered spectrum. It would end up with 16MHz of contiguous
spectrum in the 800MHz band, in which to continue to offer iDen-based
voice services, and 10MHz in the 1.9GHz band, where it could build next
generation voice/data services, complementing the WiMAX and Mobile-Fi
trials it is running in its MMDS spectrum.

Opponents, notably the largest cellco, Verizon Wireless – backed by the
CTIA - have argued that this scheme would amount to a giveaway to
Nextel, which built its network in the late 1990s at relatively low cost
by acquiring piecemeal spectrum and running Motorola’s iDen technology
over it. Verizon has pushed for the new bands to be auctioned and has
promised to bid around $5bn. "Given a minimum bid of $5bn on the
spectrum, we're hoping the FCC would take a look,” said the company,
which claims Nextel should pay to fix the interference problems itself
through engineering techniques. It has filed a petition to begin an
auction of the 1.9GHz spectrum and to designate the bands for a
nationwide broadband cellphone license.

"The fact that Nextel has demanded this spectrum as its price for
promising to rectify interference to public safety operations does not
justify the Commission's acquiescence in Nextel's demand. The only
proper action for the 1.9GHz spectrum is to auction it to the highest
bidder," wrote Molly Feldman, vice president of business development at
Verizon Wireless, in a letter to John Muleta, chief of the FCC's
wireless bureau.

The most likely outcome is that the FCC will approve Nextel’s plan, but
will charge a far higher fee, around $2bn. It will still be money well
spent, from the point of view of Nextel’s ability to build on its strong
customer loyalty and margins and gain greater market share – as well as
from the point of view of public safety. It will give Nextel a greatly
enhanced ability to launch a creative range of next generation services,
and will be a cheaper option than the one it considered some months ago,
of bidding for AT&T Wireless.

Not that it has let up on its traditional behavior of accumulating
miscellaneous but valuable spectrum at a good price to support advanced
services. It built its original network by collecting SMR (Specialized
Mobile Radio) spectrum and now is focused on providing more powerful
services than iDen can offer through 802.20 or 802.16 networks running
in MMDS frequencies, on which it spent $200m last year, including buying
the wireless licenses of bankrupt telco WorldCom for $144m in cash,
outbidding BellSouth. Those licenses cover 13 regions, including
Minneapolis, Kansas City and parts of the south eastern USA, and cost
WorldCom about $1bn in 1999. Nextel also added a further $2.7m worth of
SMR recently, acquired from troubled wireless data carrier Motient.

It is not only consolidation of its spectrum that will free Nextel of
some of the shackles of iDen. Another major factor will be the end of
its exclusive supplier relationship with Motorola, the provider of the
iDen networks and handsets.

The five-year agreement ended at the close of 2003, (though it has been
renewed for one year), and so the US cellco is actively testing
alternatives to iDen, on which it has spent almost $15bn since 1995.

This may spur Motorola into more aggressive action on broadband wireless
networks, and it has already pledged to work on dual-mode handsets that
will support iDEN and any technology Nextel chooses for its next
generation. If Nextel abandoned Motorola completely over time, by
gradually phasing out iDen, it would leave a big hole in the equipment
maker’s finances. Nextel accounted for 8% of its total revenues last
year and 18% of its handset sales.

"We cannot be assured at this time of the terms of new agreements with
Nextel or Nextel's continued exclusive long term use of iDEN technology
in its wireless business as it considers next generation technology
options," Motorola said in its annual report filed with the Securities
and Exchange Commission .

Nextel has carved out a strong market with enterprises through
innovative services such as Push To Talk, once exclusive to iDEN but now
offered by other carriers. It needs to continue to be ahead of larger
rivals in pushing out new and attractive offerings, and Motorola may not
offer the best platform to do that any longer – the iDEN upgrade, WiDEN,
is not impressive compared to third party alternatives and its roll-out
has been delayed following technical glitches. Nextel is looking to roll
out a third generation network at the turn of the year. Its chief
evalutions are currently of Flarion – whose Flash-OFDM technology is the
basis of a pilot in North Carolina, which went into the commercial phase
this week; as well as CDMA2000, WiMAX and IPWireless, with all but CDMA
able to run in the underused MMDS spectrum.

Meanwhile, as Nextel marshals its forces, Cingular is also building up
to overtake Verizon as the largest US cellco, once its takeover of AT&T
Wireless is finalized. Cingular has completed its deal to acquire $1.4bn
worth of spectrum from Nextwave. That company, which seeks to provide a
wholesale network for carriers, is drawing back from CDMA EV-DO and
testing IPWireless kit supporting the data-optimized UMTS TDD technology
(see separate story).

At one time, Verizon and the FCC had considered blocking the sale and
forcing Nextwave to sell the frequencies at public auction but then drew
back from that action. NextWave had agreed to sell the licenses, valued
at $5.5bn to $7.5bn, to Cingular, but it still owes the Federal
Communications Commission $4.3bn for spectrum that it acquired in a 1996
auction, and on which it failed to make payments. It filed for Chapter
11 bankruptcy protection in 1998 and the FCC repossessed the licenses
and re-auctioned them in 2001, but NextWave sued the Commission and
reclaimed its licenses after a US Supreme Court ruling, creating a huge
upheaval in the US 3G map.

Now that that particular political saga is finally over, the additional
spectrum, along with that which Cingular gains through its AT&T Wireless
takeover, will give the second largest cellco a far stronger platform on
which to improve its quality of service and improve its margins and
subscriber base following a period of stagnation.

Nor is the AT&T-Cingular deal likely to be the last in the US. Sprint
has decided to re-combine its wired and its PCS wireless stocks, a move
seen by some analysts as an attempt to make itself more attractive to
bidders. Combined, it should have a market value of about $26bn, making
it the US’ fourth largest telco with wireless, local and long distance
lines.

Amid all this upheaval, there is one area where cellcos have had a
welcome breathing space. Still to have a big impact on the carriers is
Local Number Portability (LNP) – the new rules introduced last autumn
that allow customers to keep their cellphone number if they change
carrier. This change was expected to create a huge wave of defections by
dissatisfied users, but so far this has not materialized, according to
research by In-Stat/MDR. However, it is expected to become apparent as
2004 progresses, as technical problems with LNP are ironed out and
enterprise or consumer contracts come up for renewal. The upcoming
merger of CIngular and AT&T Wireless could also increase churn as users
fear a decline in quality of service during the consolidation process.

The greatest churn is likely to be seen in the business market, where
companies are increasingly intolerant of poor service as they become
more dependent on their wireless technologies for critical applications.
Among business users, ARPU is 70% higher than for consumer subscribers,
and Verizon and Nextel are the leaders in market share in this valuable
segment . Verizon leads in the broad business sector – consisting of
corporate-liable, corporate-sponsored, and personally acquired phones
expensed to the company– although it will be overtaken by the combined
Cingular-AT&T. Nextel dominates the most valuable subsector, that of
corporate liable users, according to analysis from Yankee Group, with
37% share.

http://www.rethinkresearch.biz/free_page_view.asp?crypt=%B3%9C%C2%97%91u%D0%A0%C2%C0%60%8Dqxo

--
    "NEXTEL-1 IT'S NOT JUST NEXTEL"
  Note The New address
Subscribe to Nextel-1: http://www.groups.yahoo.com/subscribe/NEXTEL-1

  "NEXTEL2 FOR iDEN SOFTWARE DEVELOPERS"
Subscribe to Nextel2: http://www.groups.yahoo.com/subscribe/NEXTEL2

  "WIRELESS FORUM HOMELAND SECURITY GROUP"
     The Complete Resource for Wireless Homeland Security.
Subscribe to WFHSG:  http://www.groups.yahoo.com/subscribe/WFHSG

------------------------ Yahoo! Groups Sponsor ---------------------~-->
Buy Ink Cartridges or Refill Kits for your HP, Epson, Canon or Lexmark
Printer at MyInks.com.  Free s/h on orders $50 or more to the US & Canada.
http://www.c1tracking.com/l.asp?cid=5511
http://us.click.yahoo.com/mOAaAA/3exGAA/qnsNAA/61FxlB/TM
---------------------------------------------------------------------~->

-- 
    "NEXTEL-1 IT'S NOT JUST NEXTEL"
  Note The New address 
Subscribe to Nextel-1: http://www.groups.yahoo.com/subscribe/NEXTEL-1

  "NEXTEL2 FOR iDEN SOFTWARE DEVELOPERS"
Subscribe to Nextel2: http://www.groups.yahoo.com/subscribe/NEXTEL2

  "WIRELESS FORUM HOMELAND SECURITY GROUP"
     The Complete Resource for Wireless Homeland Security.
Subscribe to WFHSG:  http://www.groups.yahoo.com/subscribe/WFHSG

Yahoo! Groups Links

<*> To visit your group on the web, go to:
     http://groups.yahoo.com/group/NEXTEL-1/

<*> To unsubscribe from this group, send an email to:
     [email-masked]

<*> Your use of Yahoo! Groups is subject to:
     http://docs.yahoo.com/info/terms/