|
At
Nextel, talk is cheap
Related
link:
Marketing shifts into high gear
as Nextel becomes NASCAR sponsor
by
Garry Kranz
For
Virginia Business
November 2003
During
the mid-1990s, while other high-tech companies in Northern
Virginia inflated the technology bubble, Nextel Communications
was sucking wind. Although it had a novel idea —
a push-to-talk cellular phone that doubled as a walkie-talkie
— the technology behind it failed to live up to
expectations. Subscriptions flagged, and Nextel couldn’t
crack an already-fragmented market for wireless phone
services. Fickle investors, who had given Nextel a huge
ride through the equity markets in the early ’90s,
bolted for more surefire ventures. “We went from
being viewed as a very promising company to one that
was on the verge of bankruptcy,” says Tom Kelly,
Nextel’s executive vice president and chief operating
officer.
What
seemed like the end, however, turned out to be a new
beginning. As other carriers jostled for consumer cellphone
subscribers, Nextel took aim at underserved commercial
and enterprise markets. In 1996, it began offering high-end
data applications and other advanced communications
services on one handset, particularly to corporations
with a large mobile work force. To showcase its wares,
the company opened a glitzy, high-tech showroom in Reston
where it could sell businesses on the advantages of
using the wireless gizmos. As Kelly says cryptically:
“Soccer moms were not our target.”
The
rest, as they say, is history or, more accurately in
Nextel’s case, a glimpse of the future. As 2004
approaches, Nextel still dominates the walkie-talkie
market — even though competition is heating up.
Along the way, it’s reshaped the competitive landscape
insofar as winning business customers goes. Armed with
a much-improved Direct Connect walkie-talkie cell phone
and a coast-to-coast “all-digital” wireless
network, Nextel has cut a swath through the Fortune
500. The company boasts of serving 95 percent of America’s
largest companies, with nearly 90 percent of its 12
million subscribers originating from within the business
sector.
Analysts
say Reston-based Nextel used innovative product development
to capture an untapped business market. In 2001, for
example, it unveiled the first mobile phone in the U.S.
capable of running Java-based computer applications.
Nextel took a novel approach to pursuing the business
segment, says Adam Guy, a research analyst with the
Yankee Group in Boston. “Rather than mass-market
to enterprise customers, which is what other carriers
did, Nextel differentiated itself by taking its push-to-talk
(walkie-talkie) integration and successfully marketing
it to specific business segments with specific business
needs.”
Indeed,
the company went after core business segments with vigor.
Higher revenue growth and job creation have followed.
In June, the company posted its fifth consecutive quarter
of profitability, including revenue of $2.6 billion
— a 19 percent jump from the previous year. In
the past year, Nextel has increased its work force by
13 percent to 15,000 employees, including 3,500 people
in Virginia. The company also is scouting for 300,000
square feet of additional office space in Northern Virginia.
A
series of catchy advertising campaigns have made Direct
Connect into a national brand. Nextel has even upset
the apple cart in the world of sports marketing, taking
over the title sponsorship of NASCAR from tobacco giant
R.J. Reynolds, which held the spot for 32 years. (See
story on page 22) Beginning in 2004, NASCAR’s Winston
Cup series becomes known as the Nextel Cup.
Nextel
also leads the pack in two critical metrics watched
by all wireless companies: revenue per subscriber and
customer churn. Through the second quarter of this year,
Nextel’s average monthly service revenue per subscriber
was $69 per month. And its “customer churn,”
which reflects how quickly customers leave Nextel for
competitors, is an industry-low 1.6 percent. That suggests
Nextel is doing a good job of acquiring customers as
well as convincing them to buy additional services,
says Guy.
Nextel
offers Direct Connect walkie-talkie service as a standard
feature on all its phones. Customers also can purchase
service plans that tack on additional options, including
text messaging and wireless Internet access. The walkie-talkie
feature was first unveiled in 1992, when the company
was known as Fleet Call Inc. and based in Washington,
D.C. Fleet Call, launched in 1987 by Morgan O’Brien
and Mark R. Warner, Virginia’s current governor,
went public in 1992. A year later, the company name
was changed to Nextel. O’Brien serves as Nextel’s
vice chairman. It’s unclear if Warner still holds
stock in the company, since he put most of his assets
into a blind trust before taking office in 2002.
For
more than a decade, Nextel’s hold on the market
remained unchallenged, but lately its success is attracting
challengers. Verizon Wireless launched its own push-to-talk
phone in August, and other providers plan similar rollouts.
Kelly says Nextel will parlay the competition into more
innovative product development. “We’ve always
had competition. What makes a difference for us are
the services we deliver and the network we use to deliver
them,” Kelly says.
That network, which is entirely digital and spans both
U.S. coasts, enables Nextel to offer long-range walkie-talkie
service without relying on the public telecommunications
infrastructure, which providers can neither manage nor
improve. A humorous Nextel TV ad features a Monty Python-like
spokesman who tries to convince viewers that messages
are carried from point to point by bionic homing pigeons.
Humor aside, Nextel’s network involves sophisticated
switching technology and specialized mobile radio spectrum,
known as SMR. The network, based on Motorola’s
integrated Enhanced Digital Network, bypasses heavily
trafficked public telecom networks. Data is sent using
digital radio signals, rather than a series of interconnected
wires, hubs and routers. That means data packets don’t
need to be broken down and reassembled at the end of
their digital journey. The result, according to Nextel
officials, is transmissions that are crisper and instantaneous.
Nextel completed a national rollout for Direct Connect
in July, a month ahead of schedule.
The
service has a lot of satisfied users. Howard Berger,
who runs Stafford Systems, a carpentry and construction
company in Stafford County, outfitted his work force
with Direct Connect phones. Foremen, superintendents
and key skilled tradesmen use Nextel to bid on jobs,
order materials and keep tabs on project development.
Not only that, but most of Berger’s customers and
suppliers also are on the Nextel network, which speeds
communications and reduces voice mails and faxes. “This
is a tool that gives us an advantage. It’s our
belief that the first one (to bid on a job) gets the
prize, so the sooner we can respond to a customer, the
better,” says Berger.
Nextel’s
intense focus on business customers is embodied in the
gleaming 5,800-square-foot Nextel Center of Excellence,
which opened in Reston in October 2002. Featuring interactive
exhibits, a plush multimedia theater, and numerous wall-mounted
plasma screens, the center is used to woo potential
customers and to train salespeople about new products.
Companies like Coca-Cola Bottling Corp. and Waste Management
Inc. have visited the facility to get hands-on demonstrations.
“It’s a place where executives can come and
see the wireless products we have for enterprise use.
Many people still think of us as just a cellphone company,
but we do a lot more,” says Danielle Schweisthal,
manager for the center.
Nextel
also works with strategic partners, including Sun Microsystems,
Electronic Data Systems, IBM, Motorola Inc. and others
to customize wireless devices for specific industries.
They include a device equipped with chip sets for global
positioning systems, which Nextel sells to customers
in transportation and logistics. Nextel developed a
special wireless two-way radio, used by public safety
professionals, that operates even if E911 networks are
interrupted. Sales people use Nextel’s wireless
credit-card scanners to close deals in the field. Other
companies equip their mobile workers with wireless bar-code
scanners to update inventory from remote locations.
Things
weren’t always this rosy, however. When Kelly arrived
in 1996, Nextel was on life support. Its walkie-talkie
technology had failed to take off as hoped — Kelly
says it “failed miserably” — which stalled
revenue growth and relegated Nextel to being a regional
carrier. Another problem was huge debt, incurred when
Nextel began acquiring massive amounts of mobile radio
spectrum from carriers and other companies in the late
1980s.
The
plan had been to use the radio spectrum to build a vast
wireless network that stretched the country. But it
wasn’t until 1995 that Nextel began executing its
strategy, thanks largely to $1.1 billion invested by
wireless pioneer Craig O. McCaw, who in effect became
its largest shareholder. McCaw wanted a fresh challenge.
A year earlier, he had sold his cellular-and-paging
company, McCaw Cellular Communications, to AT&T
Wireless Services for $11.5 billion. The company became
known as AT&T Cellular.
Shortly
after McCaw’s investment, a new slate of management,
including Kelly and President and CEO Tim Donahue, came
aboard to right the ship. (Donahue recently inked a
deal to remain at the helm through 2006). Donahue came
to Nextel in 1996 from AT&T Wireless, where he occupied
several executive positions. Kelly also had been with
AT&T Wireless as vice president of marketing immediately
prior to joining Nextel in 1996. The pieces then were
in place to start fresh. Management knew it had an ace
in the hole: even though Nextel’s initial push-to-talk
phone was flawed, the company had no competitors. It
had managed to corner the market, even with an inferior
product.
Nextel
got Motorola, which had exchanged its SMR spectrum for
an equity stake in Nextel in 1995, to rework the walkie-talkie
technology. Then it went after high-value customers
in fields such as construction, financial services and
real estate, among others. And, it focused on productivity
savings rather than the convenience of wireless. It
also took two bold steps: eliminating roaming fees and
offering national calling plans with standard pricing.
Meanwhile,
the company continues to invest in its network. Nextel
is available in 293 of the 300 largest U.S. markets,
a geographic span encompassing 242 million people. “From
day one, we targeted businesses vs. consumers and Direct
Connect had a lot to do with that decision. We understood
how companies were using Direct Connect for a lot of
their internal communications with staff, suppliers
and customers,” Kelly says.
So
powerful is Nextel’s network that it has been a
flashpoint for controversy in recent years. The network
has been linked to causing public-safety interference
in the 800 MHz band, an issue the Federal Communications
Commission has yet to resolve. To diminish interference
caused by its network, Nextel wants the FCC to restructure
the 800 MHz band into two parts, one for cellular systems
and one for public safety systems. A coalition of wireless/cellular
companies, public safety agencies, and other businesses,
including competitors Verizon Wireless and Cingular
Wireless, are vehemently opposed. “Nextel’s
plan is too complicated, too costly and takes too long
to complete. It also gives away billions of dollars
worth of public property to a single company,”
says Tom Wheeler, president and CEO of the Cellular
Telecommunications and Internet Association, an industry
group based in Washington, D.C.
Despite
the opposition, Nextel is plowing forward with no apologies.
It has been paying off debt — $4.3 billion since
the first quarter of 2002. That solidified plans to
roll out its national Direct Connect network, says Guy.
“Nextel always was an enterprise player, even in
the mid-1990s. But it was only after buying spectrum
that Nextel was able to put together a nationwide network.
And that’s been a key attraction for businesses.”
The
accolades continue to pour in. Nextel was ranked No.
1 in Business Week’s Tech Info survey for 2003.
It was named top mobile communications company for 2003
by Frost & Sullivan, a New York City consulting
and market research firm.
Still,
success can be a double-edged sword. Now larger wireless
competitors are chatting up their own walkie-talkie
services. Verizon Wireless launched its nationwide walkie-talkie
product in August, along with an advertising campaign
that touted its network as superior. Nextel responded
by filing suit in federal court in New York City in
September, alleging that Verizon’s ads make “false
and unsubstantiated claims” and seeking damages.
To date, Verizon has made no public comment on the suit.
Regardless
of the legal wrangling, Nextel knows lawsuits won’t
chase away the competition. AT&T Wireless and Sprint
PCS will join the fray, with each planning to introduce
walkie-talkie phones soon. Although Nextel should continue
its stranglehold on the walkie-talkie market in the
near term, its grip no doubt will be tested.
Return
to Virginia Business - November 2003
|
|
