Subject: [NEXTEL-1] Motorola's Stephen Bahlmann Says: Nextel's gap (lead) could eventually be reduced or closed.......

From: [email-masked]
Date: Mon, 01 Sep 2003 21:38:10 -0400

SEPTEMBER 2, 2003

NEWS ANALYSIS:TECHNOLOGY
By Olga Kharif

Crashing Nextel's Walkie-Talkie Party
Time will tell if copycat rivals' push-to-talk features measure up to the
original, but it's certain that next year will see a fierce fight for customers
For almost a decade, Nextel (NXTL ) has reaped the benefits of being the only
wireless-service provider to offer push-to-talk service. With handsets that
function as walkie-talkies, the service allows users such as construction workers
and repairmen to chat with home offices and co-workers through a two-way radio
link. It has proven to be a remarkably popular mode of communication and Nextel's
main differentiator. Indeed, many analysts credit it with allowing the
fifth-largest wireless carrier in the U.S. to enjoy the industry's lowest customer
turnover and average revenue per user of at least $10 more than the other players.

Now Nextel is getting some tough competition. On Aug. 18, the U.S. largest
wireless service provider, Verizon Wireless, introduced its own version of the
push-to-talk (PTT) service. No. 4 carrier Sprint PCS (PCS ), with 18.2 million
customers, and the country's largest regional wireless service provider Alltell
(AT ) are due to roll out similar capabilities in the fall. In the first half of
2004, it's the turn of No. 2 operator Cingular, the third-largest service provider
AT&T Wireless (AWE ), and No. 6 T-Mobile.

STUNTING GROWTH?  The competition could not only cut into Nextel's growth but dent
its average revenue per user and its customer base, believes Peter Friedland, an
analyst with W.R. Hambrecht. Only 50% to 60% of Nextel's 11.7 million users would
likely remain loyal to the operator, he estimates. The rest could be up for grabs.
And though other carriers' service might not match Nextel's, that gap could
eventually be reduced or closed, says Stephen Bahlmann of Motorola (MOT ), whose
team designed the PTT technology that Verizon uses. Plus, for many customers,
lower quality might not be a big deal if the price is right.

Nextel's rivals will likely be flexible because PTT could boost their revenue
significantly. Verizon Wireless, a joint venture between telcos Verizon (VZ ) and
Vodafone, is charging $20 a month for the service. When other carriers enter the
market, that charge would fall to $7 to $10 per user per month, estimates Adam
Guy, an analyst with communications consultancy the Yankee Group. Still, that's
almost a 20% boost to the $40-$50 a month services most carriers offer now.

Building out a PTT service isn't that expensive, costing well under $100 million
for most carriers, vs. the tens of billions they spent on networks allowing for
more voice calls and nifty data services, such as interactive mobile games, which
add only about $2 in extra revenue per user each month.

WAIT A SECOND.  What's more, the market for PTT services could ramp up fast.
Nextel has historically targeted only a small cross-section of mainly blue-collar
business users. But Verizon hopes to sign up business users and consumers, says
Kelly Higgins, PTT project manager at Verizon Wireless. So do other players. And
there's space for everyone: A Yankee Group survey in May of 2,490 business users
and consumers showed that 24% of them want the PTT function. "PTT is what IM
[instant messaging] is to e-mail," predicts Kanishka Agarwal, director of mobile
devices at wireless consultancy Telephia.

With PTT, you can connect to a friend simply by holding down a special button when
talking. The feature connects users within a few seconds, vs. 20 to 25 seconds
with conventional cell-phone dialing. And an untapped U.S. market of 31 million
people and $2.7 billion in revenue awaits, estimates the Yankee Group's Guy. If
Verizon were to upsell the service to 5% of its existing 33.3 million customers
(and it could also penetrate its rivals' pool of users), it would fetch more than
$20 million in additional monthly revenue.

That's why bitter rivals Cingular, AT&T Wireless, and T-Mobile have got together
with equipment vendors Ericsson (ERICY ), Nokia (NOK ), and privately held Sonim
Technologies to standardize the PTT technology. The first standard, which will
work on only one type of wireless networks out of three main ones, will be
announced within a week, says John Burns, president and CEO of Sonim, based in San
Mateo, Calif. Eventually, the standard would ensure that different carriers'
customers can call each other using PTT, says Roderick Nelson, chief technology
officer at AT&T Wireless. To counter this thrust, Nextel is working with Motorola
(MOT ), the creator of the unique iDen technology its network is based on, and
wireless technology powerhouse Qualcomm (QCOM ) on interoperability with
technology used by Sprint PCS.

Nextel has another reason to worry. It hasn't paired up its walkie-talkie service
with an IM-like screen, showing which of the users are available at a given time,
as Verizon has done. And analysts say that's what will make the improved PTT
service the next wireless killer app.

ANNOYING LAG.  Still, this battle is just starting, and Nextel has some key
advantages. For starters, its service is easy, and connections are fast. In
contrast, a caller on the Verizon network has to wait three to five seconds to
connect to the recipient. Then, a delay of several seconds occurs in between each
person speaking and the voice actually coming through on the phone. The latency,
which Verizon Wireless insists its customers won't mind, bothered this
correspondent greatly when she tried the service. "Anybody currently using Nextel
will never want to switch," believes Jonathan Atkin, an analyst with RBC Capital
Markets.

Other rivals are taking notice. Sonim, which is working to bring PTT to an
undisclosed North American carrier, says its connection times will eventually be
virtually instantaneous, under a second like Nextel's, says Burns. Sprint PCS, for
one, expects to see less latency than Verizon, says Jason Guesman, director of
business marketing for Sprint PCS.

Another barrier that the newcomers have to overcome is the dearth of PTT-enabled
phones, which have a special button and better speaker quality. Carriers will have
to find a way to get their customers to upgrade to new phones which come, in the
case of Verizon Wireless, at $149.99 a pop for a Motorola V60p phone on a two-year
contract.

Still, Nextel can't sit on its laurels. Analysts expect a PTT service free-for-all
in 2004.

http://www.businessweek.com/technology/content/sep2003/tc2003092_1187_tc119.htm

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