Subject: [NEXTEL-1] Nextel Communications' monopoly onncellphones that also work as walkie-talkies has ended.

From: [email-masked]
Date: Mon, 22 Dec 2003 13:17:25 -0500

Nextel Communications' monopoly onncellphones that also work as walkie-talkies
has ended.
The walkie-talkie way: Competition is shaking up the cellphone industry

By Nancy Gohring
Special to The Seattle Times

Nextel Communications' monopoly onncellphones that also work as walkie-talkies
has ended.

In August,
Verizon Wireless broke the
stranglehold on the market when it
introduced a competing service, seven
years after Reston, Va.-based Nextel
rolled out its offering.

Verizon Wireless' introduction and those soon to follow from other carriers may
shake up the cellphone industry more than any other new service in recent
memory.
Push-to-talk, or PTT, as the walkie-talkie-like service is called, allows users
of specially equipped cellphones to press a button and instantly talk to another
customer without waiting for the phone to ring and the caller to pick up.
The service has appealed largely to
business customers, especially those
in industries such as construction, field
service and facilities management.

Now that there's competition, the question becomes: Will Nextel customers switch
to other carriers? If they do, it could threaten the market position of the
company that pioneered the technology.

The unique feature helped Nextel achieve the industry's highest average revenue
per user and strongest customer loyalty. Its 12.3 million subscribers spend an
average of $71 per month, compared with about $50 by users of other cellphone
services. Just 1.4 percent of Nextel customers cancel their service in favor of
another carrier's, a rate lower than the industry average of 2.7 percent in the
third quarter this year, according to the Yankee Group, a Boston consultancy.

"They're the company that has proven there is a need for PTT, and they've done a
very good job of showing the world that money can be made at this," said Craig
Farrill, president, chief executive and co-founder of Kodiak Networks, a San
Ramon, Calif., developer of a push-to-talk platform.

But Verizon Wireless' launch of PTT also proved that the market — like
everything else in the wireless business — can be highly competitive. The No. 1
national wireless carrier in terms of subscribers, Verizon Wireless boasted
100,000 PTT customers just six weeks after introducing the service.

Sprint PCS rolled out PTT in November, and AT&T Wireless is testing it among
employees in the Seattle area, with plans to launch commercially the first half
of next year. Cingular Wireless intends to roll out the service next year, too,
while T-Mobile isn't discussing PTT plans.

Craig McCaw's influence

The walkie-talkie/cellphone combination was introduced in 1996, when Nextel was
under the leadership of telecommunications pioneer Craig McCaw, a Seattle
native.

McCaw, who only recently resigned from Nextel's board as he heads toward new
investments, first invested in Nextel in 1995, when the company was a dispatch
service for taxi drivers.

"McCaw saw the value of what PTT could bring beyond taxi drivers," said Audrey
Schaefer, a company spokeswoman.
Morgan O'Brien, who led Nextel before McCaw's arrival and now serves as vice
chairman, originated the concept of combining the two services, but needed an
established player like McCaw to take the idea to fruition.

"When they (O'Brien and McCaw) had the crazy idea for a two-in-one service,
hearing it from Craig holds a lot of weight," said Schaefer. With McCaw's
influence, Nextel was able to persuade cellphone maker Motorola to develop the
technology.
Nextel leveraged the uniqueness of the technology to take a long lead in this
niche. The other carriers haven't offered PTT until recently because the
technology to add it onto the cellular network wasn't available. "The processing
power and speed wasn't there until this year," said Farrill, whereas Nextel
designed and built its network specifically for the service.

Although Nextel is no longer alone in this market, some observers doubt
customers will migrate from Nextel en masse.
For one thing, Nextel prepared for the recent onslaught of competition with
another industry first: nationwide PTT. Before launching nationwide PTT in July,
Nextel customers could use the feature only with other Nextel customers in the
same region. Now, Nextel customers can use it with any other Nextel customer in
the U.S. The services from Verizon Wireless and Sprint
PCS also allow coast-to-coast PTT.

Nextel also has a point of differentiation in the way its service and the newer
ones work.
"These (new) services do not offer the same quality PTT experience as Nextel
subscribers have come to expect," said Seamus McAteer, a senior analyst with the
Zelos Group, based in San Francisco.

Verizon Wireless users, for instance, must wait several seconds between the time
they first press the button and when they can talk; Nextel's setup time is
nearly instantaneous. Sprint PCS's service works quicker than Verizon Wireless',
McAteer said, but users still notice a delay.

"That kind of latency is something that our business customers have no interest
in," said Nextel's Schaefer. She said Nextel hasn't noticed any impact since
Verizon Wireless and Sprint PCS have entered the market.
Coveting coverage

But while current Nextel users will notice the differences, McAteer said,
consumers or business users who aren't already accustomed to Nextel's service
may not. Those customers may choose a Nextel competitor because of better
coverage area or a wider choice of handsets.

Nextel has been criticized for covering less territory than some other carriers.
Also, because Motorola developed Nextel's technology, it is the only supplier of
Nextel handsets.

Still, those differences may not be significant enough so that each carrier
thinks it can attract and retain customers on their offerings alone. Judging
from the number of lawsuits that have been filed between Verizon Wireless and
Nextel, both companies may be feeling threatened by competition (see
accompanying story).

Currently, all available PTT services limit customers to interacting only with
those on the same service. The carriers that use the GSM (global system for
mobile) platform, however, are developing a standard so that their customers
would be able to use PTT across all of their networks. Among the national
carriers, AT&T Wireless, Cingular and Bellevue-based T-Mobile USA operate on
GSM.

Carriers that allow each others' customers to interact have noticed significant
increases in usage of such offerings as short-message service.  Verizon Wireless
doesn't see a market right now for interoperability but that could change in the
future, said Georgia Taylor, a company spokeswoman.

Nextel has no interest in enabling interoperability with other operators, said
Schaefer. "We would never want to put our customers in a situation where by
using other people's networks they're getting a lesser experience," she said.
It's not clear if customers will ever be able to use PTT across networks that
use different technologies. "That's a real stretch," said McAteer.

Platform pros, cons
While carriers consider interoperability, at least one vendor may hope that all
the carriers also haven't yet decided on the platform for PTT delivery.

Verizon Wireless and Sprint PCS both use their data networks to deliver PTT as a
Voice over Internet Protocol (VoIP) service, which is also used by Internet
telephones. Kodiak is the only vendor to offer a product that allows carriers
instead to use voice channels, though Kodiak has yet to publicly announce any
carriers that have bought its system.
Kodiak's Farrill said using the voice channel avoids the setup delays that
Verizon Wireless and Sprint PCS have.
Using the data channels, however, also offers benefits. For one thing, carriers
have invested heavily in building data networks. "They're looking to load more
applications on those data networks and this is a way to do that and increase
(average revenue per user) along the way," said Randy De Lorenzo, vice president
and general manager, wireless services, at Telwares, a Destin, Fla., company
that helps corporations choose telecom services.

Regardless of which networks a service uses, Farrill said PTT is leading to a
refocusing on voice, rather than wireless data, services.

"We've all been busy looking at data and there's nothing wrong with that," he
said. "But there's a golden opportunity now that we have the technical
capability to add voice services that accelerate the velocity of calling. Our
philosophy is to create a renaissance in voice services."
Combined with the recent introduction of number portability — in which cellphone
customers can switch carriers and keep their phone numbers —

PTT will deliver significant pressure on the industry, said De Lorenzo. That's
because large corporations, which make up some of the most profitable customers,
think they can negotiate for better rates as competition grows.
Carriers are already reducing prices and offering deals to retain their most
profitable business customers, said De Lorenzo.
"There's this entire perfect storm going on in wireless," he said. "There's a
homogenization of offerings, as much as they like to differentiate themselves."

Nancy Gohring, a Seattle freelancer, writes frequently about wireless and
telecommunications issues.

http://seattletimes.nwsource.com/html/businesstechnology/2001820516_pushtotalk22.html

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