Subject: [NEXTEL-1] Nextel Delivers On Smart Growth Strategy

From: Marcel <[email-masked]>
Date: Sat, 15 Mar 2003 21:36:03 -0500

Nextel Delivers On Smart Growth Strategy

The company has grown from a bit player
in land mobile radio to one of the top six
U.S. carriers. Here's how.

By Sue Marek
March 15, 2003

Kristin Davis from the HBO series "Sex and the City" uses Nextel
Communications' Direct Connect to touch base with her boyfriend.
Actor Rob Lowe uses the two-way walkie talkie-like service to
negotiate a deal with his agent.

These current advertising pitches featuring popular celebrities
using Nextel's phones project a far more glamorous image of the
company and its iDEN network than a few years ago when Nextel was
considered primarily a niche technology with a loyal following
among public safety officials and blue-collar workers.

Over the past four years, using what Nextel executives call its
"smart growth" strategy, the company has gone from being a niche
player to becoming one of the top six U.S. carriers. With 10.6
million customers nationwide, average revenue per user of $69 per
month and a monthly churn rate of 2.1 percent or lower, Nextel
currently drives some of the highest margins in the industry.

The company's stellar performance in today's tough economic
climate, coupled with its ability to turn what some once
considered an inferior technology into a competitive advantage, is
the reason Nextel Communications is this year's recipient of the
Wireless Week Excellence Award in the supercarrier category.

Tim Donahue, Nextel's president and CEO, credits the company's
smart growth strategy, its differentiated push-to-talk service,
and its iDEN network with Nextel's success and its ability to
overcome obstacles, including its lack of a 3G migration path. "We
put together a strategic plan and said that we wanted to stay very
focused as a company on the business customer because we felt that
the business customer was the most profitable, and that turned out
to be the case," Donahue says.

Of course, Nextel's Direct Connect service always has been a huge
draw for certain business segments, particularly construction
workers and public-safety officials. But Nextel didn't just stop
with marketing its service to those long-time two-way radio users;
it also dedicated a large part of its energy and marketing savvy
to developing a following among all types of business customers.

At year-end Nextel reported that 5.7 million of its subscribers
are from the small and medium business segment while about 2.2
million of its subscribers come from the enterprise and government
sector, an area the company sees growing substantially in the year
ahead. The remaining subscribers are individuals who typically
purchase Nextel service for business-oriented usage. Donahue says
the company caters to these segments not only with its innovative
Direct Connect service but also through its distribution and sales
channels, which have industry experts in each segment dedicated to
selling Nextel's service.

Target Markets Besides sales and distribution, the company uses
its in-depth knowledge of each business segment to come up with
specific applications for industries such as manufacturing, fleet
services and construction. "We revamped our distribution in the
past few years so we have industry experts in each segment,"
Donahue says. "We really understand these vertical industries and
we are developing applications that they find useful and
productive."

Analysts believe Nextel's dedicated sales force and
industry-specific focus has played a big role in the company's
customer loyalty and low churn rate. And that likely will help the
company, particularly as other operators make a more concerted
effort to tap the business market. "Nextel's business sales force
is second to none," says Roger Entner, program manager in wireless
services at the Yankee Group. "Other carriers will have to make
massive strides to pull even."

Though Nextel's main focus always has been the business market,
the company is taking some initial steps to target other areas,
including younger users. Last fall the company began testing Boost
Mobile, a prepaid offering targeted at the teen market. The
service is only available in parts of California and Nevada and as
of year-end the company said it had acquired about 30,000 Boost
subscribers. Donahue says the company is pleased with Boost's
initial results in terms of ARPU and churn but that it's still too
early to say whether it is something the company will want to
pursue or expand. "We will not roll out Boost unless it's clear to
us that the margin on the minute is at least as good as what we
have today."

Aside from its selling strategies, Nextel has invested heavily in
its network over the past year. Nextel is in the process of
updating its network with a 6-to-1 vocoder technology, which
company executives estimate will double its interconnect capacity.
On the handset side, new devices with the vocoder technology will
be seeded in the market later this year and the company expects to
see huge benefits from the 6-to-1 vocoder by year-end 2004.

Nextel also is in the midst of optimizing its Direct Connect
service so that customers can use Direct Connect to communicate
with other subscribers anywhere on Nextel's digital network,
regardless of their location nationally. The service is being
rolled out in two phases, but the company anticipates being
nationwide with Direct Connect by mid-year.

It is the expanding capabilities of Direct Connect that Donahue
believes will help the company continue to take subscribers away
from competitors. At year-end Nextel said it believed it had
captured 18 percent of the industry's net adds. "We don't
necessarily bring a lot of new people into this category," Donahue
says. "The reason we feel pretty good-and in our guidance for 2003
we said we plan to add 1.7 million new customers-is because of the
momentum the product has."

And many analysts agree with Donahue's assertion. According to
Kagan World Media wireless analyst John Byrne, securing an 18
percent share of net adds is good, especially for a company that
is "supposedly limited in terms of who would be interested in
their service."

Packet Data On the data front, while other carriers have spent
millions upgrading their networks so they can offer higher speed
data services, Nextel has been content to provide its customers
with its packet data service that offers data speeds of between 15
kilobits per second and 20 kbps. Though some have been critical of
these slower speeds, Donahue says the company knows more about
packet data than any other players. "Our customers are buying our
data applications," Donahue says. "And 15 kbps to 20 kbps is
perfectly acceptable to them."

But Donahue admits the company likely will have to eventually
build a broadband voice and data network. However, he says the
company won't do it until there is enough customer demand to
justify that type of expenditure. "We're not going to build
networks until we understand that there will be customer demand."

This prospect of having to build another network at some point
does raise concerns with some analysts. "When they have to go to a
new network, things could get interesting," says Ken Hyers, an
analyst with In-Stat/MDR, a sister company to Wireless Week. "They
will have to realize significant expenses when they switch to a
new technology. You won't see many GAIT phones supporting iDEN to
CDMA or GSM, and that's going to be a problem."

PTT Plays Perhaps more critical than the company's eventual
network migration issues is that Nextel is facing imminent threat
from other carriers that are planning to debut push-to-talk
offerings in the coming months. Donahue downplays this competitive
threat by saying the technologies that these carriers are
proposing to use have call latency and set-up issues that would
not be tolerated by Direct Connect customers. However, he admits
these competitive push-to-talk offerings may be appealing to
consumer applications. "There might be some applications on the
consumer side, which is their space, where that latency may be
acceptable."

But those push-to-talk latency and set-up issues most likely will
be resolved at some point. When that happens, analysts say, it
will be up to Nextel to maintain its marketing edge with its
subscribers. "By 2005, the latency issues will be addressed and
then it's going to come down to who is better at marketing to
those customers," Hyers says.

Certainly, Nextel is hoping that its dedication to enterprise
customers and its Direct Connect push-to-talk service will
continue to set it apart from the other nationwide players.

http://www.wirelessweek.com/index.asp?layout=story&articleid=CA284599&spacedesc=Special+Section&stt=000

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