Nextel Communications Inc.

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Nextel Communications Inc.

founded: 1987

Contact Information:

headquarters: 2001 edmund halley dr.
reston, va 20191 phone: (703)433-4000 fax: (703)433-4343 url:


Launched in 1987 to take advantage of the specialized mobile radio (SMR) market, Nextel Communications today is one of the major digital mobile phone operators in the United States. The company provides digital mobile communications throughout the United States by offering integrated wireless services under the Nextel brand name, targeting primarily business users. Nextel's digital mobile network is one of the largest integrated wireless communications systems utilizing a single transmission technology in the United States. Referred to as integrated Digital Enhanced Network, or iDEN, this technology was originally developed by Motorola.

Customers who use Nextel's digital mobile network are able to access digital mobile telephone service, including such advanced calling features as conference calling, voice mail, speakerphone, and call forwarding, and Nextel Direct Connect service, allowing subscribers within the same local calling area to contact one another instantly. Other services accessible to customers using Nextel's network include international roaming capabilities (marketed as Nextel Worldwide), as well as Internet services, mobile messaging services, e-mail, and advance Java-enabled business applications (marketed as Nextel Wireless Web services).

As of the end of 2001, Nextel had nearly 8.7 million digital handsets in service in the United States. Nextel's iDEN network, along with the compatible digital mobile network of Nextel Partners, were operational in 195 of the top 200 metropolitan statistical areas of the United States as of December 31, 2001.


It might not seem it to look at Nextel's bottom line for 2001, but company executives were clearly pleased with its accomplishments for the year. Writing in the company's 2001 Annual Report, Timothy M. Donahue, president and chief executive officer, observed, "Nextel delivered its best financial results ever in 2001. We met our goals, adding nearly 2 million new domestic subscribers, and generating $1.9 billion in EBITDA (earnings before interest, taxes, restructuring and impairment charges, depreciation and amortization) for domestic operations. We continue to lead the national carriers with the highest monthly revenue per unit and have the highest customer loyalty rate. In fact, Nextel ranks first in Customer Lifetime Value, according to the Yankee Group."

Nextel posted a net loss of almost $2.9 billion for 2001 on revenue of about $7.7 billion, compared with a net loss of slightly more than $1 billion on revenue of $5.7 billion in 2000. In 1999 the company reported a loss of more than $1.5 billion on sales of about $3.8 billion. However, a glance at some of the company's other key data provides a somewhat brighter picture of the company's progress over those three years. Domestic service revenue totaled nearly $6.6 billion in 2001, compared with just under $5 billion in 2000 and $3.2 billion in 1999. The company's operating cash flow in 2001 totaled $1.9 billion, up from about $1.4 billion in 2000 and $700 million in 1999. Nextel's domestic subscribers increased to nearly 8.7 million in 2001, a big jump from 6.7 million in 2000 and 4.5 million in 1999.

The announcement in May 2002 that Nextel's international subsidiary, NII Holdings, Inc., had filed for protection from the U.S. Bankruptcy Court cast something of a shadow over Nextel's financial picture. A good part of Nextel's 2001 loss was directly attributable to the problems of its global subsidiary, which had defaulted on most of its $2.7 billion in debt. Earlier in 2001 Nextel had written off $1.7 billion in debt it was owed by NII. Under the terms of NII's Chapter 11 filing, Nextel's stake in NII was to be reduced from 95 percent to less than 50 percent, with most of the equity transferred to NII bondholders. Additionally, Nextel has agreed to contribute up to $65 million in new capital to NII, with an additional $75 million or more coming from a consortium of NII bondholders. Nextel will also give NII $50 million in funding as part of an existing agreement under which the two companies share wireless spectrum in Mexico and the United States.

Nextel's performance in the first quarter of 2002 cheered investors and analysts alike. The company's revenue and cash flow rose on the strength of vigorous subscriber growth. Nextel added slightly more than a half-million new customers in the United States, surpassing the projections of security analysts that had forecast subscribers would increase between 475,000 and 500,000 during the quarter. As of March 31, 2002, Nextel's subscribers totaled 9.2 million. The company's revenue rose to $2.16 billion from $1.74 billion in the same quarter the previous year. However, Nextel's net loss increased $654 million, compared with a loss of $428 million the previous year. The company's first-quarter 2002 results included a charge of $355 million related to goodwill accounting changes, as well as a restructuring charge of $40 million. Excluding these extraordinary charges, Nextel's net loss was $279 million, or $.35 a share, better than the average $.40 loss predicted by analysts.

FAST FACTS: About Nextel Communications Inc.

Ownership: Nextel Communications is a publicly owned company traded on the NASDAQ Stock Exchange.

Ticker Symbol: NXTL

Officers: William E. Conway, Chmn., 52; Timothy M. Donahue, Pres. and CEO, 53, 2000 base salary $465,174; Paul N. Saleh, EVP and CFO, 45

Employees: 17,000

Principal Subsidiary Companies: Nextel Communications Inc.'s major subsidiaries include Nextel Partners, Inc. and NII Holdings, Inc. Nextel Partners, in which Nokia Communications holds a share of 32 percent, provides digital wireless communications services under the Nextel brand name in mid-sized and tertiary U.S. markets. Formerly known as Nextel International, NII Holdings is a substantially wholly owned subsidiary of Nextel Communications. The subsidiary exports Nextel's brand of wireless service to overseas markets, most notably Latin America and the Philippines.

Chief Competitors: Nextel's primary competitors on a national scale are AT&T Wireless Services, Cingular Wireless, Sprint PCS, Verizon Wireless, and VoiceStream Wireless Corporation. In addition to its competitors in the nationwide market, Nextel competes with a number of regional providers of mobile wireless voice communications, including such companies as Southern LINC.


Nextel's cash flow improvement in the first quarter of 2002 won praise from most security analysts. Typical of their reactions was this comment from Jeffrey Hines, an analyst with Deutsche Bank Securities: "It was a great quarter across the board." Comments from investment banks SoundView Technology and Williams Capital Group indicated that Nextel's cash flow figure surpassed their expectations.

Analysts also seemed to look with favor on Nextel's positioning in the market for walkie-talkies, an old technology revived by wireless operators in their search for new customers and higher revenue. Nextel had introduced a radiotelephone combination in the late 1990s, giving it a leg-up in the competition for the consumers' walkie-talkie dollar. While cell phone calls generally take several seconds to connect, do not support instant group links, and are more expensive, most walkie-talkie chats are finished before a phone call could have been connected. Trucker Consolidated Freightways uses Nextel's Direct Connect walkie-talkie technology to stay in touch with its drivers. According to Brownlee Thomas, an analyst with Giga Information Group, "it's a group thing. It doesn't cost me what it would cost to set up a conference call. . . ." Michael Doherty, a wireless analyst with Ovum, observed that Nextel has already got such a strong foothold on the market that other entrants would have to come up with something pretty innovative to make a serious bid in the walkie-talkie market. "Depending on how the newer entrants bundle push-to-talk in with their other product lines, that's where they could start to do some damage to Nextel."


In the mid-1980s the Federal Communications Commission, realizing that the cellular phone industry had matured to a point where it could withstand greater competition, opened the door to the development of specialized mobile radio (SMR). Morgan O'Brien, a prominent telecommunications attorney, decided to try his fortune in the emerging SMR industry. Partnering with accountant Brian D. McAuley, O'Brien founded a company called Fleet Call to acquire SMR properties. In its first year Fleet Call financed the acquisition of 10 mobile radio companies and began making plans to construct communications networks in major markets. The SMR business had been dominated for years by Motorola, which manufactured the radio systems and also operated dozens of networks. Fearing that Motorola would block Fleet Call's efforts to build a new SMR communications network, O'Brien and McAuley arranged to meet with Motorola Chairman to outline their proposal to him in person. Much to their surprise, Motorola's chairman not only supported the idea but also asked if Motorola could become a partner in the venture. An agreement was worked out, giving Motorola an equity stake in Fleet Call, and Motorola began working on components for the new communications network. Only a month after meeting with Fisher, Fleet Call had increased its holdings to 74 mobile radio companies in major metropolitan areas, including Chicago, Dallas, Houston, Los Angeles, New York, and San Francisco. At this point all of Fleet Call's mobile radio businesses were operated as radio dispatch systems utilizing old analog transmission technology.

In early 1991 Fleet Call petitioned the FCC for permission to design and build digital communications systems that would operate on the SMR bands. By going digital, the systems would allow many more calls to be made while still providing access to existing fleet dispatchers. The FCC unanimously approved Fleet Call's request. After getting the green light from the FCC, Fleet Call brought in other partners to help Motorola build the network. These new participants in the project included Canada's Northern Telecom and Matsushita of Japan. Partners O'Brien and McAuley took Fleet Call public in January 1992, raising $112.5 million. From Motorola, Northern Telecom, and Matsushita, Fleet Call got $345 in equipment financing, and cable television operator Comcast provided another investment commitment of $230 million in exchange for a 30 percent interest in the company.

Although Fleet Call's communications system attracted wide interest from investors, it did have one significant drawback-its incompatibility with other cellular networks. To turn this into an advantage, Fleet Call decided to significantly expand its already completed Los Angeles cell site (completed in May 1992), extending coverage south to the Mexican border, east to Palm Springs, and north to Santa Barbara. And the company pledged to extend service to all of California by mid-1994. Facilitating Fleet Call's expansion was its merger in December 1992 with Dispatch Communications. The combination gave Fleet Call coverage in nine of the country's 10 largest markets. In early 1993 Fleet Call hired John Caner, who previously had been director of wireless data development at PacTel Cellular. Two months later Fleet Call changed its name to Nextel, which seemed more in keeping with the new-wave technologies the company was using.

Throughout the early 1990s, Nextel continued to extend its network of radio bands, acquiring most of them through merger. Of particular importance was the company's alliance with long-distance provider MCI in February 1994, giving Nextel nationwide long-distance coverage. By the end of 2001, Nextel had become the fifth largest wireless communications operator in the United States.


Nextel's business strategy focuses on the differences that distinguish its wireless service offerings from those of the competition. The company's strategy emphasizes five main points: (1) Nextel provides a differentiated, integrated package of wireless services, including its unique Nextel Direct Connect feature; (2) Nextel focuses on the business customer; (3) Nextel's nationwide upgrade to the iDEN digital mobile network, already under way, will effectively double the operator's voice capacity for interconnect calls and leverage the company's investment in its existing infrastructure; (4) Nextel's pricing strategy, marketing program, and distribution channels; and (5) the company's strategic relationships with Motorola, Craig O. McCaw, and Nextel Partners.

Nextel's bundled product offering, accessible through a single handset, consists of digital mobile telephone service, including advanced features; Nextel Direct Connect service; Internet services; and international roaming capabilities. The company believes its Direct Connect service more than any other service sets it apart from the competition. Nextel also believes its focus on business customers positions the company well to handle the specific needs of this market. The company's deployment of the iDEN technology gives Nextel one of the most comprehensive wireless coverage networks in the United States. Nextel also believes its pricing packages offer customers simplicity and predictability in their wireless communications billings. Finally, Nextel touts the value of its close relationships with Motorola, wireless maven Craig O. McCaw, and Nextel Partners in giving the company the technological counsel it needs to help develop new technologies and improve existing products.


As the wireless mobile communications business has become increasingly competitive, all the major players have sought new and innovative ways to market their services and products. Nextel, the fifth largest wireless communications operator in the United States, is no exception. In 2001 the company moved aggressively to target "the right customer through the right channel at the right price" in order to reduce its customer acquisition costs while at the same time achieving a higher rate of return.

Through its acquisition in May 2001 of the "Let's Talk Cellular & Wireless" retail chain, the 200 outlets of which were re-branded Nextel stores, the company opened up an important new marketing channel and also helped to facilitate service and repairs for its existing customers. The company said it planned to add another 200 retail outlets in 2002. Based on its experience in 2001, the average revenue per unit at Nextel stores was even higher than that generated through the company's other sales channels.

In 2001 Nextel's TeleSales channel, accessible by telephone at 800-NEXTEL9, experienced an increase in calls of more than 80 percent over the previous year. But that jump pales in comparison with the increase in productivity of the TeleSales line in 2001. More than 209 percent more phones were sold through this sales channel than in 2000. The company attributes at least part of this spectacular growth to its decision to outsource its telemarketing operations to outside companies with greater experience in this form of marketing.

Another key marketing channel for Nextel is the Internet. The company's 2001 sales through its Web site were up more than 240 percent from the previous year. The sharp increase in sales is particularly heartening to Nextel since the customer acquisition costs for this channel are among the company's lowest.


Significant trends in the wireless communications industry include the move towards greater consolidation. Many observers have identified Nextel as a likely candidate for merger with a larger, more financially stable partner sometime within the foreseeable future. The likelihood of such a merger is expected to grow as the Federal Communications Commission continues to relax its limits on how much of the wireless spectrum can be controlled by a single company. The FCC limits are scheduled to disappear altogether by January 2003, making Nextel a likely target for several potential buyers.

CHRONOLOGY: Key Dates for Nextel Communications Inc.


Morgan O'Brien and Brian D. McAuley form Fleet Call, Inc.


Fleet Call goes public


Fleet Call changes name to Nextel Communications Inc.


Nextel agrees to buy all of Motorola's SMR licenses in the United States


Nextel increases U.S. subscribers to total of 9.2 million

The wireless communications industry, like most industries in the United States, has been moving aggressively to reduce its costs. In 2001 Nextel reduced its payroll substantially when it decided to farm out its customer relations operations and its technical functions to IBM and EDS Corporation.

Recognizing the consumer appetite for something new and different in wireless services, Nextel has been aggressively marketing its new version of the walkie-talkie, an alternative to cellular service. Nextel had actually introduced a radio/phone combination in the late 1990s, giving it a decided advantage in this emerging market. The push-to-talk technology, using radio frequencies, provides almost instantaneous connections, while cellular calls typically take several seconds to connect.


Nextel's products fall into two principal categories: wireless services and mobile phones. The company's services and their features include Nextel Direct Connect, which uses radio frequencies to provide almost-instant connections and costs sharply lower than those for cellular service; Wireless Web services, which allow users to access the Internet on their mobile phones; and Nextel Mobile Messaging. Other popular Nextel services include Nextel Worldwide, which allows subscribers to stay connected in a number of countries outside the United States, and Email Services, giving subscribers easy access to their home and business e-mail accounts. Nextel also offers Java applications on a number of its mobile phones.

Mobile phones marketed by Nextel include nine models, including the top-of-the-line i90c, its smallest full-feature phone, and the i2000plus, which offers worldwide capabilities and a vibrating signal of incoming calls. All Nextel mobile phones are Internet ready and equipped for such features and services as digital two-way radio, voice mail, call waiting, caller ID, mobile messaging, and call hold.


Nextel is proud of its reputation as a responsible corporate citizen. The company has undertaken a number of initiatives to support the communities in which it operates. In April 2002, Nextel partnered with APS Wireless Communications of Bensalem, Pennsylvania, to raise money for the ALS Association in the fight against Lou Gehrig's disease. APS Wireless announced it would contribute $5 to the ALS Association for every unit sold in its nine stores during the month of April. Nextel agreed to contribute an additional $5 to ALS for every Nextel phone sold by APS Wireless during the month.

In March 2002 Nextel underwrote the CBS-TV show "9-11," a two-hour documentary account of the terrorist attack on New York's World Trade Center September 11, 2001. The company devoted its television time during the show to raise public awareness and funds for charitable causes, as well as to pay tribute to America's public safety workers.


Much of Nextel's international operations are handled by its global subsidiary, NII Holdings, Inc., previously known as Nextel International. However, NII experienced some serious financial setbacks in 2001 and in May 2002 was forced to seek bankruptcy protection from its creditors in order to reorganize. NII, sells the Nextel brand of wireless communications, in Latin America and the Philippines, in which regions it has slightly more than 1 million subscribers. Under the terms of NII's reorganization plan, Nextel's stake in its subsidiary will be reduced from 95 percent to less than 50 percent, with most of the equity being transferred to NII bondholders.


A new Nextel service is helping alert Minnesotans to weather changes. The service, developed by Nextel primarily for business customers, is offered via cell phone by Digital Cyclone of Minnetonka, Minnesota. The customized weather service, introduced in early 2002, is proving particular popular with building contractors, landscapers, and others whose work schedules are dictated by the vagaries of the weather. The service provides real-time weather data and animated radar screens that show the direction and speed of weather conditions on a cell-phone display. To obtain the service, customers must have a Java-enabled cell phone, which are sold by Nextel for about $75 to $250. The weather service itself costs $12.95 a month for black-and-white display. Color service was to be introduced in the summer of 2002.

In addition to the Nextel services marketed abroad, the company's domestic subscribers have access to international services when they travel abroad. Subscribers using Nextel's i2000plus phone can make calls in more than 80 countries worldwide. Even those subscribers who don't have an i2000plus phone can make calls outside the United States in the countries of Argentina, Brazil, Canada, Israel, Mexico, Peru, and the Philippines.


At the end of 2001, Nextel employed approximately 17,000 employees worldwide, about 13,000 of whom work in the United States. In its 2001 Annual Report, the company described its employees as "the power behind our performance and results. They anticipate our customers' needs. They push innovation. They create wireless solutions to business challenges. They form one national team."

Recognizing the importance of continuing education for its employees, Nextel in 2002 planned significant enrichment initiatives with Nextel University and Quarterly Career & Development Planning. These company programs are designed to ensure that Nextel's employees are equipped with the industry-leading skills and knowledge to help the company advance in today's increasingly competitive marketplace.



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nextel communications inc. 2001 annual report. reston, va: nextel communications inc., 2002.

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peterson, susan e. "the digital forecast."minneapolis star tribune, 22 april 2002.

For an annual report:

on the internet at: write: investor relations, 2001 edmund halley dr., reston, va 20191

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. nextel communications inc.'s primary sics are:

4812 radiotelephone communications

5999 miscellaneous retail stores, nec

6719 holding companies, nec

also investigate companies by their north american industrial classification system codes, also known as naics codes. nextel communications inc.'s primary naics codes are:

513320 wireless telecommunications carriers (except satellite)

551112 offices of other holding companies