Subject: [NEXTEL-1] Yankee ON VZ

From: [email-masked]
Date: Thu, 04 Sep 2003 14:49:29 -0400

Although Verizon Wireless has made some important
improvements, the latency of its walkie-talkie service will not
enable it to compete directly with Nextel

On August 18, 2003, Verizon Wireless (VZW) became the second Tier 1 carrier in the

U.S. to offer an integrated walkie-talkie interface with cellular service.
Previously, only
iDEN carriers such as Nextel, Boost Mobile, Nextel Partners, Southern LINC, and
Telus Mobility (in Canada) offered integrated walkie-talkie in North America.
For years, Nextel has enjoyed higher ARPU and lower churn compared with the rest
of
the industry. Although its integrated walkie-talkie feature contributes to ARPU,
it’s only
part of the picture. The main driver for Nextel’s success is its focus on, and
mastery of,
delivering service to specific industry segments.

In a quest to appeal to the business market, grow revenues, reduce operating
costs,
and attract and retain customers, VZW has introduced a similar integrated
interface.

Product Analysis

In August, we started conducting side-by-side usability and performance testing of

Nextel’s Direct Connect and VZW’s PTT services. Using both services, we made
walkie-talkie calls between Boston and California to compare nationwide
performance.
In evaluating our findings, it is important to consider that we measured Nextel’s
Direct
Connect service after years availability and VZW’s PTT in the first few days of
availability. This is important because we expect Verizon’s PTT service will
improve in
some ways and get worse in others as more people use the 1XRTT network. Verizon’s
PTT account management Web site should improve, as should the user interface and
contact management features. Voice quality and data network capacity could worsen
as more users adopt the service (see Exhibit 1).

Exhibit 1.
Nextel Direct Connect and Verizon Wireless Push-to-Talk Service Side by Side

Factor
Advantage
to end user
Nextel
Verizon Wireless
Call Set Up
Latency
Nextel
Call set up is
almost
instantaneous.
Experienced
Nextel users will
find VZW PTT
slow and latent.
Set up lasts between
5 and 7 seconds. New
walkie-talkie users will
find VZW PTT call set
up to be much faster
than wireless voice
calls.
Intra-Call Talk
Permit Latency

Nextel
Talk permit is
virtually
instantaneous and
not measurable.
Noticeable—between
1/2 to 2 seconds.
Content /
Media Latency
Nextel
Media latency is
perceivable but
insignificant.
Noticeable—between
1/2 to 2 seconds.
Voice Quality
Nextel
Occasional garbled
voice quality, but
no gaps.
Occasional garbled
voice quality, but and
occasional gaps where
one party talks but the
other party cannot
hear.
Presence
Verizon
Wireless.
No presence
Icons indicating
availability
Contact
Management
Nextel
Users can receive
a Direct Connect
call and add the
“Private ID” to the
contact list from
the phone.
Current product does
not allow users to add
a number and
designated it a PTT
number on the
handset. Users have
to go to the web to do
this.
Single Number
Neutral
Nextel has a
separate “Private
ID” for Direct
Connect. This is
inconvenient, but
less intrusive.
VZW uses the same
number for PTT and
cellular telephony,
which is convenient,
but intrusive.
Keypad and
P2T button
Usability
Verizon
Wireless
Users have to go
to the contact list
to find Direct
Connect users.
This plus an extra
keystroke, plus an
unfiltered list
through which to
scroll.
Users can press the
PTT button to pull up
their contact lists of
filtered PTT users.
Group Calling
Verizon
Wireless
Group calls have
been hard to
set-up. Nextel
recently enabled a
web site for group
set-up.
VZW’s group set up
and calling was quick
and easy on the web
interface.
Service
Pricing*
Neutral
On a
per-anytime-minute
basis, Nextel’s
Free Incoming
plans are cheaper
in the lower bucket
categories.
America’s Choice
plans with PTT are
comparable in the
higher bucket
categories and include
a limited time
promotion of unlimited
group calls.
Source: The Yankee Group 2003
*We compared VZW’s America’s Choice PTT plans with Nextel’s Free
Incoming plans with unlimited Direct Connect ($10 per month). To make the
plans comparable, we assumed that 45 percent Nextel users’ airtime
consists of incoming calls (this is what Nextel users reported on average in
our 2003 Mobile User Survey). With the $60 and other small bucket plans,
VZW’s PTT service comes at a premium to Nextel’s. A Verizon customer
spending $70 per month with unlimited P2T, free LD and unlimited nights
and weekends will get 500 anytime minutes at a rate of $.14 per anytime
minute.

A Nextel customer can spend $70 on a Free Incoming plan with unlimited nights and
weekends and nationwide Direct Connect (assuming 45 percent of the customer’s
usage are incoming calls), and the Nextel customer gets an effective rate of $.10
per
outbound anytime minute of airtime. To calculate this, we divided the 600 anytime
minutes by 55 percent, the percentage of outbound usage that Nextel customers
report
in the MUS. In higher bucket plans, VZW’s pricing becomes more competitive.
Following the same methodology, a VZW PTT customer can spend $170 per month
and enjoy an effective rate of $.07 per anytime minute on 2400 anytime minutes. A
Nextel customer can spend $160 per month and enjoy $.06 per anytime minute of
outbound airtime.

Bottom Line

Although VZW has made some important improvements, the latency of its PTT
product inhibits its ability to compete directly with Nextel. New users will find
the user
interface to be simple and convenient; seasoned Nextel users will find the latency
to be
frustrating. Nextel’s product is superior in terms of the immediacy and
reliability of the
person-to-person connections. Verizon has made some key innovations in terms of
presence and convenient group talk functionality. We are optimistic about the
evolution
of the walkie-talkie interface into what we call Next-Generation Push-2-Connect
(NG
P2C), which will include multi-media messaging, interoperability across carriers
and
dynamic presence, which will include location detection and dynamic availability
settings.

Nextel Recommendations

·         Market Direct Connect as the gold standard of integrated walkie-talkie.
Nextel should market its Direct Connect service as the “real” walkie-talkie,
compared with “imitation” overlay versions. Nextel should highlight the
instantaneousness and the reliability of iDEN.

·         Wait to interoperate until a CDMA carrier achieves critical mass. Nextel

should interoperate with CDMA carriers using QChat only once the installed base
of walkie-talkie or NG P2C users reaches half the size of Nextel’s installed base
of
Direct Connect users. At this point, the increased value of the larger user base,
will
outweigh the potential costs of open access to Nextel’s subscribers.

·         Lead the market with NG P2C capabilities. Nextel should immediately
develop
enhancements to its Direct Connect solution including presence, location
detection, multimedia, and voice messaging. Voice messaging should be at the
top of the priority list given that upcoming IP-based deployments will include a
voice messaging capability.

VZW (and other Cellular and PCS Carriers) Recommendations

·         Focus on alternative market segments. VZW should focus its marketing
efforts
on the market segments other than the blue and gray enterprise segment where
Nextel focuses and users have experience with its instantaneousness.
White-collar enterprise work groups, families, and teens will find
non-interoperable
walkie-talkie services valuable before the network is populated with users.

·         Offer a downloadable client to work on existing handsets. In subsequent
rollouts of walkie-talkie interfaces, carriers should deploy downloadable clients
that
end users can use to recruit other users.

·         Interoperate as soon as possible. VZW should interoperate as soon as
there are
customers of compatible carriers. This will increase the value of its service by
increasing the number of available network nodes.

·         Push vendors to reduce latency and add features. Verizon should push
Motorola to reduce the call setup and intra-call latencies so the end-user
experience does not lose in comparison to using iDEN walkie-talkie. The carrier
should also order enhancements such as integrated voice messaging to
differentiate itself from Nextel.

·         Introduce flexible pricing. To drive consumer adoption, Verizon should
introduce
per day or flat fees for a bucket of transmissions. This will enable the consumer
market to try integrated walkie-talkie services without making a monthly
commitment.

Adam Guy
Wireless/Mobile Services
Research and Consulting

http://www.yankeegroup.com/public/home/daily_viewpoint.jsp?ID=10532

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