Subject: [NEXTEL-1] Wireless Companies Turn to Walkie-Talkie Technology

From: Marcel <[email-masked]>
Date: Wed, 12 Mar 2003 07:05:15 -0500

Wireless Companies Turn to Walkie-Talkie Technology

Thu March 6, 2003 01:06 PM ET
By Yukari Iwatani

CHICAGO (Reuters) - In a throwback to a time before cell phones were invented,
U.S. wireless telephone companies are hoping a World War II-vintage
communications concept will help revive their stagnating businesses.

They've set their sights on a walkie-talkie-like feature that allows cell phone users
to connect with friends, family and colleagues instantly with the push of a button
instead of dialing a number and waiting for the call to go through.

"It's good news for the industry because it's an important feature," said
independent telecommunications analyst Jeff Kagan. "It's a feature that every user
will fall in love with."

The wireless phone industry has suffered a slowdown in customer growth as the
economy stumbles. Meanwhile, about half of the U.S. population now owns cell
phones, making it harder to add new customers.

For a decade, the fifth-largest U.S. wireless operator, Nextel Communications Inc.
NXTL.O , has held a virtual monopoly in offering "push-to-talk" to a niche market of
construction crews, technicians and government agencies. And despite the
market slump, Nextel stands out in the wireless industry with its leading
revenue-per-user and customer retention rates.

While larger rivals have been threatening to crash the party with similar features
for some time, concrete plans for the new service, including the basic technical
standards needed behind the scenes, are now taking shape.

AT&T Wireless Services Inc. AWE.N , the third-largest carrier, said last week it
expects to test a push-to-talk service in Seattle in the fourth quarter of 2003, and in
other regions in 2004.

An agreement announced last month by equipment makers Ericsson ERICb.ST ,
Nokia NOK1V.HE and Siemens AG SIEGn.DE to create a standard for push-to-talk
is also sure to drive competition. Cingular Wireless BLS.N SBC.N , the
second-largest U.S. mobile phone company, is supporting the joint effort although
it has no specific plans at the moment to launch such a service.

Verizon Wireless VZ.N VOD.L and Sprint PCS Group PCS.N , the nation's No. 1
and No. 4 wireless companies, have repeatedly said they intend to launch
walkie-talkie-like features this
year.

KEY TO HIGHER REVENUE

Rivals' efforts could prove to be a huge threat to Nextel, said Todd Bernier, wireless
analyst with
Morningstar. "If they can start doing the things that Nextel does, the competitive
advantage that Nextel
once had is gone."

Nextel, for example, posted free cash flow, or cash flow before financing activities, in
2002, a year ahead
of schedule.

"Nextel's been able to collect at least $20 a month more (per customer) in service revenue
(because)
they've got this push-to-talk service," said Adam Guy, director of research and consulting
for InfoTek
Research Group.

A manager at a software manufacturer, for example, can discuss a problem instantly with
all of his
engineers in a "talk group" via a Nextel phone and then notify his field technicians of
the problem within
seconds.

While Verizon Wireless, Sprint PCS and AT&T Wireless have all kept mum about their
specific plans,
analysts expect the companies to undercut Nextel's high-end prices and target a broader
customer base,
including families.

With greater coverage and bigger marketing muscle, the three companies will likely chip
away at Nextel's
customer base and might even force the Reston, Virginia-based company to cut its own
prices, analysts
said.

Nextel is also at a disadvantage because its cell phone service is based on a unique
network that is
available only in metropolitan areas, analysts said. The larger wireless companies, which
use more
standard technology, can offer users roaming options even in rural areas.

"What's left is a smaller competitor that doesn't have an edge anymore. A smaller
competitor with a less
robust telephone portion. When the edge goes away, I think you'll see their market share
erode," Kagan
said.

"ONLY DIRECT CONNECT WILL DO"

Nextel denies its emerging push-to-talk rivals pose a real threat to the company.

"While we are always listening to what others might say about it, we're confident that for
our business
customers, only Direct Connect will do," said Nextel spokeswoman Audrey Schaefer. Direct
Connect is
Nextel's name for push-to-talk.

"We understand exactly what our customers need and instant is critical," said Schaefer,
alluding to
industry talk that its competitors are still working through technology snags in the time
it takes to connect.

Nextel, for its part, has taken measures to stay competitive. It plans to introduce a new
technology that will
double its voice capacity and enhance voice quality, in addition to rolling out nationwide
Direct Connect
later this year.

Currently, Direct Connect can connect users only within a designated "home market,"
although that can
be shifted temporarily to certain cities if a customer is traveling.

Nextel will likely do everything it can to keep its valuable customers, but analysts said
the company is
certain to face tough challenges ahead especially if economic pressures continue and its
business
customers are forced to cut costs.

"If, say AT&T Wireless, which pretty much blankets the country, ... said you can use
push-to-talk as regular
minutes in any city at any time without hitches, and then they turn it into a marketing
game, you can't tell
me that won't impact Nextel even for their business users," Morningstar's Bernier said.

http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=2338549
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