Subject: [NEXTEL-1] Nextel CEO Discusses Company's Growth Strategy

From: Marcel <[email-masked]>
Date: Sat, 15 Mar 2003 21:35:14 -0500

Nextel CEO Discusses Company's Growth Strategy

By Sue Marek
March 15, 2003

Nextel Communications is considered one of the brightest stars
among U.S. wireless operators for its ability to cater to the
lucrative enterprise market, resulting in high average revenue per
user and low churn. Once considered just a niche play because its
Direct Connect walkie talkie-like service primarily appealed to
blue-collar workers and public-safety employees, Nextel built upon
the popularity of its Direct Connect service. With more than 10
million customers, it has become the premier wireless operator
catering to the enterprise and business market. Nextel CEO and
President Tim Donahue recently talked about Nextel's success with
Wireless Week Senior Editor Sue Marek.

Wireless Week: To what do you attribute Nextel's success with the
business and enterprise market?

Tim Donahue: About 3 ½ years ago 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. And we
didn't like what we were seeing in terms of the competition and
how they were competing for customers, which was primarily on
price.

We developed a series of products on the voice side and the data
side. We focused our organization on the business and enterprise
marketplace. We developed distribution strategies for it and we
went after it hard. As a result, we have the highest ARPU in the
industry; churn at 2.0 percent or 2.1 percent; and clearly the
most profitable customers. We are now driving the highest margins
in the industry. It was this focus on what we call "smart growth,"
which is a strategy that identifies the most profitable customers
and then puts in place tactics to go after them.

Wireless Week: Though Nextel has made significant advances to its
iDEN network, many have criticized the company for its lack of a
3G migration path. How do you respond?

Tim Donahue: A lot of people had always said that iDEN was not a
technology that could stand the test of time and volume. If you
take a look at our network today, it's got plenty of capacity. In
terms of quality, blocks and drops are at 2 percent or less. And
if you look at the voice quality, it's as good, if not better,
than anything out there. So I think all the skeptics that said
iDEN can't scale, now understand that was not the case. The
wonderful thing about iDEN is that we have data speeds of 15 to 20
kbps and we've been running those speeds for about four years. We
know more about packet data than anybody else in this business
because we have been doing it longer. Our customers are buying our
data applications, and for the data applications they are buying
15 kbps to 20 kbps is perfectly acceptable to them.

We will over time, it is my belief, be building a new network. In
the meantime, we will continue to generate lots of free cash flow.
Our balance sheet has never been better. We won't have to borrow
money to build any more networks so we are in a great spot
technologically and financially as we took a look at future
networks and future technologies.

Wireless Week: Nextel has benefited greatly from its unique
push-to-talk capability. Are you concerned about competitive
push-to-talk offerings that are expected in the coming year?

Tim Donahue: We have heard a lot of this rhetoric over the past
two years and nothing has yet come to market. Do I believe there
will be a push-to-talk product coming to market? There are claims
that there will be in the '03 timeframe. I personally don't
believe you will see it in the '03 timeframe but you may see it in
'04. Every product, and we know them all, because we know more
about Direct Connect than most people do, and we can tell you that
there are serious problems with call setup and latency. Our
customers, the 10.6 million customers using Direct Connect today,
cannot tolerate that kind of latency. They're primarily business
people who need the Nextel instantaneous feature. And so it is my
belief that these new products won't compete with ours for the
business customer. There might be some applications on the
consumer side, which is their space where that latency may be
acceptable. I don't know. I'm always concerned about what the
competition does, whether it's a product, pricing, a promotion or
it's a network. But am I losing sleep over supposedly a Direct
Connect equivalent? The answer is absolutely not.

Wireless Week: You plan to add a lot of customers in the year
ahead. Do you plan to continue to take customers away from other
carriers?

Tim Donahue: Ninety percent of our customer additions we take from
other carriers. We don't necessarily bring a lot of new people
into this category. Primarily the customers that we are taking are
business customers. That's nothing new for us. The reason that we
feel pretty good-in our guidance we said that we plan to add on
1.7 million new customers-is because of the momentum that the
product has. Direct Connect is now nationwide and we have
eliminated fleets in Direct Connect. Families and friends can talk
back and forth without having to be part of a structured fleet.
Now those barriers are broken down. We see enormous momentum
growing for the product.

Wireless Week: In 2002 Nextel made some efforts to attract the
teen market through Boost Mobile. Can you provide any insight into
how that initiative is progressing?

Tim Donahue: It's early. We only have two months under our belt.
We are pleased with the take rate considering it's only in one
state, California, and we have some business in Nevada. We are
pleased with some of the early signs in terms of ARPU and in terms
of churn but it's too early to say. We are not including Boost
Mobile subscribers in our total subscriber count. I think we will
be more knowledgeable about Boost by mid-year when we have
finished our testing.

I think Boost is a perfect example of the disciplined approach the
company takes toward expansion of segments. If we think there's a
market, we make sure first. Also we hire some people who really
know how to do it, like we did with the Boost people. Yes, we'll
spend some money against it but at the end of the day we'll know
whether we have a winner. We will not roll out Boost unless it's
clear to us that the margin on the minute is at least as good as
we have today. We also want to make sure that the acquisition cost
is reasonable and affordable, and that the distribution strategy
is one that can be supported. Boost to us is very interesting, we
are excited about it, but it's early.

Wireless Week: What is the greatest challenge ahead for Nextel?

Tim Donahue: I think that we are real focused on improving service
to the customer. We have spent a lot of money, time and effort
with new billing products and revamping customer care through
outsourcing. At the end of the day, if you have solid network and
solid product like we do, you have to be sure when customers are
spending in the high $60s with us that when they call you, you can
service them appropriately. We want to be the best in customer
care. It's not a problem or challenge, but it is a focus. Our
focuses are continuing on the smart growth strategy and
continually improving our ability to service the customer.

http://www.wirelessweek.com/index.asp?layout=story&articleid=CA284600&spacedesc=Special+Section&stt=000

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