Subject: [NEXTEL-1] The Voice of the Worker

From: NEXTEL-1
Date: Wed, 14 Jul 2004 14:37:46 -0400

July 12, 2004

The Voice of the Worker
By KEN BELSON

ESTON, Va., July 6 - In most industries, the sixth-largest player would
be considered an also-ran. In the cellphone world, the sixth-largest
carrier, Nextel Communications, is the one to watch.

Nextel's rapidly improving business has defied skeptics, who have long
seen the company as a scrappy, but distant, contender.  Created in 1987
when its predecessor, Fleet Call, started buying spectrum licenses used
by radio dispatchers, the company teetered financially for years. It has
few ties to telephone giants like Verizon and AT&T. And its offbeat
"Push To Talk" service, which lets cellphones double as walkie-talkies,
was considered too cute to be a threat in the turbulent mobile phone
market.
No longer.

In the form of flattery that comes with success, Nextel has become a
target for attack, having captured a significant piece of the lucrative
corporate market, thanks largely to the push-to-talk service its rivals
once derided. The big carriers now covet Nextel's business, which has
strong growth, low subscriber turnover and the highest per-customer
revenue in the industry.
Last week, the Federal Communications Commission also handed Nextel a
big victory when it approved a $4.8 billion plan that allows Nextel to
acquire highly desirable 1.9-gigahertz spectrum in exchange for ceding
parts of its old spectrum to public safety agencies for use in emergency
communications. The new spectrum will allow Nextel to offer more
advanced phone services as well as expand its push-to-talk network.

"We face lots of challenges, but the network we have wins more than
loses," Timothy M. Donahue, Nextel's president and chief executive, said
in an interview at the company's headquarters here.

Mr. Donahue has reason to be confident. The walkie-talkie service, which
is embedded in all of the company's 13.4 million phones, is probably the
main reason corporate and government workers make up two-thirds of
Nextel's subscribers. Such users account for about a third of other
cellular providers' customers, according to analysts.

The walkie-talkie function, it turns out, is well suited to hospital
employees, factory floor managers and other workers who need to have
short, frequent conversations. So unlike rival companies, Nextel has
focused on signing up blue-collar workers by, for example, designing
phones sturdy enough to withstand heavy use.

Because most of Nextel's plans do not limit walkie-talkie minutes,
bosses do not have to worry about their workers abusing the expense
account. And competitors have a hard time stealing Nextel's business
clients because the walkie-talkie function works only among Nextel users
and is not compatible with other systems.

The advantages have made the company's customer turnover - the
percentage of subscribers who switch to other services - the second
lowest in the industry, after Verizon Wireless.

Though business clients are on average more costly to lure because of
higher marketing expenses, they are bigger spenders than noncommercial
consumers. Nextel subscribers spend $70 a month, 30 percent more than
the industry average. "Other carriers have Nextel envy," said Roger
Entner, director of wireless and mobile services at the Yankee Group, a
research company in Boston.

Verizon Wireless, Sprint and others have introduced walkie-talkie
phones, and are taking aim at Nextel's business clients. But those
services have not succeeded in winning many customers, analysts say,
because the technology is not as good and the competitors have fewer
business-specific data services, like access to a multiple-listing
database for real-estate agents or a global positioning service to let
dispatchers monitor and guide their trucks.

Nextel executives acknowledge that the F.C.C. decision on the spectrum
swap is likely to be challenged in court. "I don't expect our good
friends at Verizon to roll over and play dead," said Robert Foosaner,
Nextel's senior vice president for governmental affairs and chief
regulatory officer.

But according to industry analysts, the odds are that the plan, which
was three years in the making, will not be reversed. If it
stands, Nextel could use the new 1.9-gigahertz spectrum to sell
third-generation services without having to patch together smaller bits
of spectrum.

For the most part, Nextel will continue to rely on its proprietary
technology, called iDEN, for Integrated Dispatch Enhanced Network,
developed by Motorola to weave together the shards of 700- and
800-megahertz spectrum that Nextel has collected.

Rival companies that operate their cellular networks on C.D.M.A. or
G.S.M. technology dismiss iDEN as a clumsy network that has reached its
limits. Nextel brushes off such criticism and continues to introduce
products, like national and international push-to-talk service, and data
services for real estate brokers, construction workers and other
business users. By year's end, Nextel plans to quadruple the speed of
Internet connections on its iDEN network to allow consumers to use more
data functions.

With a firm foothold in the business market, Nextel is also making
inroads into the consumer market. The walkie-talkie service has become
popular with young urban users, who have added the verb "to Nextel" to
their lexicon. This year, Nextel also began a 10-year deal to sponsor
the Nascar circuit. The company has also opened 600 Nextel retail
outlets in the last three years, and will add 200 more this year.

The efforts have paid off, despite intense competition. While Nextel is
still the smallest of the six major carriers, its subscriber numbers
have grown 54 percent since 2001. Revenue has almost doubled in three
years, to $10.8 billion in 2003. Analysts expect revenue to grow 23
percent this year and 11 percent in 2005, as Nextel steals customers
from its rivals. After more than a decade of losses, profits have grown
steadily since 2002.

By adding higher-spending subscribers, Nextel expects to generate $1.7
billion in free cash this fiscal year, up from $1.3 billion in 2003. The
company has also reduced its debt levels; Standard & Poor's in March
raised Nextel's credit ratings to one notch below investment grade, or
BB+.

Still, skeptics remain. They note that spending by Nextel subscribers
has largely peaked, albeit at a higher level than for its competitors.
The company will also have to spend several billion dollars to move
public safety agencies into the spectrum it will vacate, and to move
into the 1.9-gigahertz space it will receive in return.

More broadly, the cellphone market is reaching saturation, which means
carriers must spend more to attract a shrinking number of consumers who
do not already have phones. Verizon and others with stronger finances
may be better positioned to bid for those potential customers, analysts
say.

Even with the extra 1.9-gigahertz spectrum from the F.C.C. spectrum
swap, the bulk of the company's phones will still run on the iDEN
network, where speeds are significantly slower than those of other
third-generation technologies. At the moment, that is no great
disadvantage: not many data services exist that require high-speed
connections. But that might change if, for example, video streaming is
introduced.

"The existing iDEN technology does not have a clear path to a pure
third-generation network," said Dmitry Khaykin, who covers the
telecommunications industry for Salomon Brothers Asset Management. "They
do not have to be concerned now because there aren't a lot of bandwidth
needs, but longer term they should be."

Other analysts say that Nextel could team with other carriers to share
spectrum, or buy more outright to bolster its network.  Some go further,
suggesting that Nextel bid for another carrier so it can become a
telecommunications conglomerate. Among those mentioned as potential
merger partners for Nextel are Sprint, which is both a long-distance
carrier and a wireless provider, and MCI, which has just emerged from
bankruptcy protection.

Mr. Donahue, though, said Nextel had no interest in looking for a
partner. The company's independence, he said, has allowed it to think
more creatively than its bigger, more bureaucratic competitors.

"We intend to be a stand-alone business for a long time," Mr. Donahue
said. "We have to keep that sense of David and Goliath."

Copyright 2004 The New York Times Company

http://www.nytimes.com/2004/07/12/technology/12nextel.html?ex=1090296000&en=60ad5b1c25af99aa&ei=5062&partner=GOOGLE

------------------------ Yahoo! Groups Sponsor --------------------~--> 
Yahoo! Domains - Claim yours for only $14.70
http://us.click.yahoo.com/Z1wmxD/DREIAA/yQLSAA/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/