Trying to pin down Nextel Communications Inc. into a specific category is not an easy chore. By definition, Nextel is a specialized mobile radio operator, yet most analysts compare it with the other nationwide carriers when looking at its quarterly results and spectrum holdings.
When compared with the competition, Nextel fairs well. With more than 7 million subscribers nationwide, Nextel ranks just behind Sprint PCS and ahead of VoiceStream Wireless Corp. in U.S. customers. Nextel has also maintained higher than industry average revenue per user and lower customer churn numbers representing both its strong business-centric customer base and solid service offering.
With these results, it’s hard not to group Nextel with its nationwide competition.
Even more difficult recently is trying to pin down Nextel’s plans for next-generation wireless services. While most of the competing U.S.-based wireless operators have announced plans to roll out higher-speed data services beginning this year, Nextel claims its current wireless data offering of always on connection at speeds up to 22 kilobits per second compares favorably to upcoming 2.5G and 3G networks.
While the rest of the industry shudders in anticipation at the thought of what higher-speed networks can provide, except the accountants who shudder at what they will cost, Nextel has taken a step back from the hype and is looking at what its customers say they want.
“When it comes to data and voice traffic, we are best positioned in the industry with our packet networks,” explained Greg Santoro, vice president of wireless and Internet services for Nextel. “We don’t need 2.5G and 3G for faster speeds. We have the efficiency to deliver what we need to deliver to our customers.”
Even if Nextel wanted to roll out higher speed networks today, Santoro questions the market’s readiness for those services.
“A majority of applications available today are not made for higher-speed networks,” Santoro noted. “We don’t need to introduce things ahead of their time.”
The carrier is expected to introduce compression technology onto its networks later this year enabling throughput of up to 56 kbps.
“As a result, Nextel should not be at a competitive disadvantage relative to GPRS and CDMA 1xRT 2.5G networks deployed by the company’s competitors toward the end of 2001/early 2002, which should provide data throughput rates ranging from 14-64 kbps,” said Peter Friedland, wireless analyst with W.R. Hambrecht +Co. in a recent research note on Nextel.
Nextel’s wait-and-see approach to solutions has been looked upon as counter-intuitive in an industry that seems to be driven by the next “big thing.” But, similar to the U.S. wireless industry’s ability to see how next-generation services will develop by watching the rest of the world, Nextel said it is focusing on providing services that make sense financially. “The biggest mistake this industry can make is developing solutions for problems that don’t exist,” explained Jim Mooney, recently hired chief operations officer for Nextel.
Nextel’s understanding of its customer base is apparent both by its higher than industry average revenue per user numbers and consistently low customer churn. Nextel also has a higher than average data penetration of its customer base, roughly 15 percent, compared with other carriers offering wireless data services.
Even with its seemingly strong position in regards to next-generation services, Nextel is not turning a blind eye toward the possibility of faster speeds. But for Nextel to achieve those speeds, it will have to migrate from its iDEN-based network to either CDMA-based 1x or GSM-based wideband CDMA technology. While the carrier has yet to officially announce any decision on moving toward one of the standards, most expect a decision has to be made for Nextel to continue to compete in the wireless market.
Both technologies have advantages and drawbacks for Nextel. W-CDMA would make sense since iDEN is a distant cousin to GSM. But W-CDMA requires at least 5 megahertz of spectrum to introduce, a tough proposition for Nextel, which controls an average of 18 megahertz of spectrum in its markets.
Going with CDMA 1x would require Nextel to integrate a different technology onto its network, but only requires 1.25 megahertz of spectrum to introduce. CDMA technology also allows the doubling of voice capacity over its baseline with each 1.25 megahertz channel switched.
Either technology will also allow Nextel to broaden its current reliance on Motorola Inc. for iDEN handsets and infrastructure, although, manufacturers would still have to cater to Nextel Direct Connect feature.
“1x’s spectrum needs and additional voice capacity are an advantage,” Santoro noted. “1x is also extremely well defined and stable. When you look at all these things, 1x would seem to make sense.”
Moving on the advantages of 1x, Nextel recently released a request for proposal from CDMA giant Qualcomm Inc. regarding 1x. The proposal’s main focus is on CDMA’s ability to support Nextel’s Direct Connect feature, which is seen as its main differentiation in the market place. With a response due back from Qualcomm shortly, Nextel is expected to need almost two years to commercially roll out 1x services onto its network.
Bolstering CDMA’s chances with Nextel, the CDMA Development Group announced it will release a white paper focusing on CDMA migration alternatives for TDMA operators.
“It’s important that non-CDMA operators know that they have an option for 3G,” said Jim Takach, director of advanced programs for the CDG.
If Nextel does make the move to CDMA, Larry Swasey, president of Allied Business Intelligence Inc., thinks the move would be a bigger win for 1x than a loss for W-CDMA.
“Nextel is an important carrier, but in the overall picture, GSM and GPRS have a lot of carriers around the world,” Swasey said. “But it would be another feather in the cap for CDMA.”
Swasey said he would not be surprised if Nextel took its time in making its final decision, noting it could be looking for the best possible deal from CDMA equipment manufacturers before officially making the move.
So, while the wireless industry continues to try to predict where Nextel will fall with its next-generation plans, the carrier will continue to play to its strengths.
“We’ll be aggressive on it,” Santoro said on Nextel’s network decision. “But, we’ll want it to make financial sense to the company. We have been at it for about 18 months and will move aggressively in the market when the time is right.”
