Subject: [NEXTEL-1] Nextel Eyes Substitutes for Motorola

From: [email-masked]
Date: Sun, 11 Apr 2004 13:45:13 -0400

Nextel Eyes Substitutes for Motorola  

By Julie Johnsson

The long, exclusive partnership that made Nextel Communications Inc. 
the largest customer of Motorola Inc. is unraveling.

The nation's sixth-largest wireless carrier, with 13 million 
subscribers, Virginia-based Nextel purchases all of its phones and 
network infrastructure from Motorola, spending $14.86 billion since 
1995. Nextel's signature service, a walkie-talkie feature available 
with the push of a button, is based on technology available only from 
Motorola.

But Nextel's five-year contract with Motorola expired at the end of 
2003, and the companies are operating under a one-year extension 
while they discuss the future of their relationship. Meantime, Nextel 
is testing equipment from other manufacturers and lobbying federal 
regulators for rule changes that would reduce its reliance on 
Motorola's proprietary technology, known as iDEN.

"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 on form 10-K 
filed with the Securities and Exchange Commission last month.

Schaumburg-based Motorola's iDEN technology once gave Nextel an edge 
as the only cellular carrier with a walkie-talkie feature built into 
its phones. But that feature is now available from other vendors, and 
Nextel wants to add cutting-edge services like high-speed data to its 
network.

Competition ahead

Motorola stumbled last fall when it tried to give iDEN some of the 
extra transmission capacity needed for data services. Nextel is 
looking at high-speed network gear from three rival vendors that 
could be used to upgrade or replace the iDEN equipment. People 
familiar with the testing say Nextel intends to roll out a 
new, "third-generation" network with a new vendor by the end of 2004 
or early 2005.

Asked about the existence of such a timetable, a Nextel spokes-woman 
says, "It's not anything that I'm aware of that we have on the 
drawing boards at this time. If anything would change, we would 
announce that."

What's clear is that Motorola will soon have to compete for business 
from an exclusive customer that accounted for $2.16 billion, or 8% of 
Motorola's total sales last year. Motorola relied on Nextel for 18% 
of its wireless phone sales in 2003.

If it's less likely that Nextel would take the drastic and expensive 
step of ripping out the iDEN network and replacing it with new 
technology, the carrier is all but certain to direct its new 
infrastructure spending toward gear from other suppliers.

"At the least, you'll see limited capital spending on the iDEN 
infrastructure, with the majority of the investment put into the data 
side," says William Densmore, a director with New York-based credit-
rating agency Fitch Ratings Ltd.

Nextel has the attention of new Motorola CEO Edward Zander. Since 
joining the electronics manufacturing giant in January, Mr. Zander 
has called on Nextel CEO Timothy Donahue several times and the two 
speak regularly by phone, says a Motorola spokeswoman. Mr. Zander 
declined to be interviewed for this story.

"Motorola has long recognized that the industry's migration toward 
broadband wireless data services was going to result in the 
introduction of other suppliers to meet Nextel's needs," the 
spokeswoman says, via e-mail.

Motorola plans to create new handsets that would work on both iDEN 
and the new technology chosen by Nextel, and develop software that 
will enable the systems to interact, she says.

Nextel, meanwhile, is testing high-speed network gear from New 
Jersey's Flarion Technologies Inc. and IP Wireless Inc. and Qualcomm 
Inc., both based in California.

Bad connection

Nextel needs a data network capable of delivering video, Internet 
access and e-mail at blazing speeds to keep pace with its rivals. A 
Motorola upgrade that was supposed to boost the iDEN network's 
capacity was withdrawn last fall after it garbled some calls. The 
Nextel spokes-woman says Motorola is fixing the glitches and plans to 
re-install the technology later this year.

On another front, Nextel is asking regulators at the Federal 
Communications Commission to consolidate its radio frequencies, which 
are now scattered across the radio spectrum, into a contiguous block. 
Doing so would free Nextel to dump iDEN, the only wireless technology 
designed to run on scattered radio frequencies.
 
 http://www.wbbm780.com/asp/ViewMoreDetails.asp?ID=37291

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