The second handset vendor Nextel Communications Inc. was counting on to make an iDEN phone by this year has decided to pursue other technology avenues.
Japanese vendor Kyocera Corp. and Nextel late last year signed a letter of intent calling for the vendor to produce a small, high-end iDEN phone. Kyocera instead has decided to focus on CDMA and third-generation technologies.
“Kyocera conducted a top-down review of new product opportunities earlier this year. At that time, a strategic decision was made to focus on developing products for 3G technologies rather than expand our product portfolio to include products for other 2G technologies besides CDMA,” said Rick Goetter, senior manager of global public relations with Kyocera.
Nextel had spent most of 1999 looking for another handset vendor to support its rapidly growing subscriber base and give its customers another choice. Motorola Inc., the inventor of iDEN, is Nextel’s only handset and infrastructure vendor. Since 1995, Motorola has offered iDEN technology for licensing, acknowledging that doing so would create a more competitive environment and attract more network operators to the technology. Kyocera was to be the first vendor willing to license iDEN technology, which integrates a pager, two-way radio and mobile-phone in one device.
Nextel did not return phone calls requesting comment.
Nextel has not been hurt much by the lack of variety since it is targeting business users in work groups. Its churn rate is one of the lowest in the industry and its ARPU and subscriber growth is among the highest. But some analysts believe Nextel will need more handset suppliers to remain competitive in the future, especially if it chooses to target the consumer market. More suppliers would bring technology innovation and drive down costs.
“Nextel needs another vendor in order to remain competitive over the long term and more importantly to remain price competitive,” said Bryan Prohm, senior analyst with Gartner Group’s Dataquest. “They’ve got to find some cheaper handsets out there among global suppliers. The cost of acquisition is very high because of higher upfront pricing of handsets. It’s higher than other digital handsets.”
Other digital operators can choose from legions of vendors, which in turn drives down the price because of the competition between manufacturers.
“It certainly limits Nextel,” said one financial analyst who declined to be named. “Is it critical? No. But it would have helped to have choices and to lower costs.”
Motorola’s technology has always garnered much interest from other vendors, but the iDEN market still is too small to support a number of players that must pay royalty fees to Motorola, analysts say.
The iDEN market last year was one of the most attractive ways for Kyocera to enter the U.S. handset market since the U.S. CDMA, TDMA and GSM handset markets are highly competitive. However, Kyocera purchased Qualcomm Inc.’s handset division late last year and is using Qualcomm’s brand name to gain momentum.
Most vendors aren’t looking to enter new 2G handset markets. Many are focusing on 3G technologies at this point as carriers hope to transition to this new technology in the next two years. Along with iDEN phones, Kyocera dropped plans for GSM and TDMA phones.
And no one knows Nextel’s plans for the next generation. Some analysts suspect the company may move along the same evolution path as GSM and TDMA technologies. iDEN technology is a derivative of those technologies.
“It still is worthy to hold Nextel up as a textbook example of a successful wireless company,” said Prohm. “But in order to maintain that level of success, they have to have an evolution strategy. No one knows what it is.”
