Nextel Communications is a leading wireless provider in the US.
From an operating standpoint, it is considered to be one of
only three national carriers in the US, along with AT&T
Wireless and Sprint PCS. Nextel is aggressively targeting the
business market. The company's digital network now covers more
than 65% of the population. It provides service to virtually
all the top 100 markets in the US. The company also has a
growing portfolio of international investments with a number of
operations in Latin America and the Asia Pacific.
Nextel has gained a reputation for innovation, following the
launch of its "Direct Connect" service. This enables the user
to speak with one person or more at the touch of a button on a
Nextel phone. It allows someone access to co-workers instantly
to direct projects and meetings at very low cost. This form of
instant communication makes this product one of the most unique
in the wireless industry. According to Tom Lee, a telecoms
equity analyst at Salomon Smith & Barney: "They definitely
have a unique technology and a unique product, the "Direct
Connect". In the US they are really the sole major national
carrier that offers Motorola's iDEN technology. I would say
that makes them innovative."
The recent merger between AirTouch and Vodafone has sparked
rumours that Nextel could be part of the next large-scale
wireless merger. Lee believes, however, that the iDEN
technology could be one obstacle to a possible merger involving
Nextel: "I have mixed views on Nextel as a merger target. They
definitely have a unique set of assets. But in some ways their
uniqueness makes them a little more difficult to consolidate.
The basic reason being that iDEN technology, while a derivative
of GSM, really isn't compatible with GSM. Anybody who acquires
Nextel also potentially ends up partnering with Motorola,
because there is no-one else who makes iDEN infrastructure.
So anyone looking to invest or acquire Nextel probably has to
grapple with two equally difficult decisions. First of all, how
am I going to deal with incompatible technologies, if I am
trying to develop a global platform? Secondly, am I really only
going to be tied to one infrastructure provider?"
In an exclusive interview with Global Telecoms Business, the
chairman and CEO of Nextel Communications Dan Akerson talks
about the changing nature of the wireless industry and his
ambitions for the company.
What are your opinions on the Vodafone/AirTouch
merger? Do you believe that such consolidation is healthy for
the wireless industry?
Akerson: I think that Vodafone paid a lot of money
and that AirTouch isn't a terribly competitive nation-wide
carrier in the US. I presume that a premium was attached to
their European operations. Do I think that it is a healthy
development in the industry? I really don't know. The biggest
telecoms market is here in the US. Vodafone and AirTouch
certainly have an international orientation, although I am not
all that familiar with the competitive dynamics of Europe, but
I don't think that it will have much impact in the US, unless
there are further developments that have yet to be announced.
It has been reported that Nextel may be subject to
acquisition by a number of operators, including MCI WorldCom.
Do you think that Nextel may follow this route, in the interest
of shareholder value?
Akerson: We don't manage the company to be acquired.
We manage the company to maximize shareholder wealth. If
someone were to come in, we would look at any bid, but we have
kind of pulled ourselves up by our own bootstraps and have
become one of the few US national carriers. Beyond the standard
response, I'm not going to comment on acquisitions or potential
combinations with Nextel. We manage the company as best we can
and for shareholder value. If anything happens beyond that, we
would look at it in terms of how it would benefit our
shareholders over the long term against going it alone over the
How do you react to criticism that the proprietary
Motorola technology that you use is not up to scratch? How do
you view moves by Motorola and Cisco to develop jointly
wireless net technology?
Akerson: First of all I would reject the assertion
that the technology is not up to scratch, because the
technology that we have offers everything that GSM does plus
more. There is no other carrier in the world literally that has
a frequency agile technology with an all packetized air
interface that offers an integrated service of everything, the
latest digital services that can be added and our unique
We also recently announced an initiative where every phone
that we sell in the latter half of 1999 will be an Internet
phone. Nobody else is doing that in the industry. The wireless
data before then had been this CDPD, which is spectrally
inefficient. It is really quite clumsy. What we demonstrated at
CTIA kind of blew the industry's socks off, in that every phone
is literally an Internet phone.
I can receive and inter-act with you on a real-time basis from
London, Hong Kong or Los Angeles on a PC or I can go from
telephone to telephone or I can visit any Web page on the
Internet. That is a very powerful technology. The very fact
that you ask whether it is up to scratch indicates that we have
not done a very good job in outlining that.
The Cisco/Motorola development will ultimately lead to voice
over Internet, voice over IP for the wireless industry. Where
does that put Motorola/Nextel/Cisco? I would guess that over
the next 24-30 months there will be less reliance on circuit
switching, as to where you see the GSM guys and the CDMA folks.
There is a whole different dynamic operating as a result of the
Motorola/Cisco alliance. I think that dynamic, tied to our
unique technology, really positions Nextel quite favourably.
How do you react to criticism that you are too
dependent on one supplier, Motorola? As Motorola is an equity
investor in Nextel, is there potential for a conflict of
interest, should you wish to buy hand sets from another
Akerson: No, because we have always had that
capability. It is in our contracts. We are not bedded solely to
Motorola for hand sets and we have the contractual rights to
bring in a second or third vendor if we so desire.
Could you tell us about your digital network? How much
is it costing to build? What competitive advantages do you
think this network gives you?
Akerson: As I said, we are the only carrier to have
an all packetized air interface. This enables us to introduce a
packetized Internet application that our competition cannot
emulate, not now and not for some time to come - I would guess
for at least a year, maybe two. That in itself represents a
huge advantage. The other area of differentiation is that we
are building out in most of North America, certainly the US. We
own part of Clearnet in Canada.
They are deploying our technology. Obviously we are building
out Mexico and several other foreign countries. But at the end
of the day footprint counts, especially in the US. At this
point, we have the largest digital footprint in the US, bigger
than AT&T's and bigger than Sprint's. There are some
concerns that we don't do dual mode, but I was looking at a
customer survey - one of our customers, a former AT&T
customer, said that he couldn't understand why he couldn't or
didn't receive his text messaging or voice mail in certain
areas and the quality of his service suffered.
The average customer does not know or understand tri-mode
phones, dual-mode phones, analogue or digital. They simply want
to press a button and be able to communicate. AT&T, Sprint
and many of the other RBOCs still have a lot of analogue
coverage. We don't make any bones about it. We aren't trying to
be all things to all people. We have made a strategic statement
to the effect that we are going to differentiate in our
product. We want differentiated products.
You have seen that in our "Direct Connect" feature. You are
going to see this in data. Later in the year we are going to
come out with the Nextel World-wide phone that will operate in
130 countries. That is differentiation. Secondly, we sell the
business. We are not trying to be all things to all people. We
develop our products. Our distribution channels are primarily
focused on the business customer. AT&T, Sprint and some of
the other competition tries to be all things to all people.
They end up trying to sell the same phone to the soccer mum in
this country, as they do to the chief technology officer of a
Fortune 500 company. The applications are not the same.
Could you tell us about the Nextel National Business
Plan? What services will you be able to offer customers? How do
you view AT&T's digital one rate plan? Has this led to the
departure of higher-end subscribers?
Akerson: To understand, we need to go back several
years in time. Nextel was the first company to introduce two
changes to the industry. This happened almost three years ago -
we offered a no-roaming commitment. I think that drove AT&T
into the digital one rate.
The second thing we did is really revolutionary: if you talk
for two minutes and one second on our competition's network,
they charge you for three minutes. If you talk for two minutes
and one second on our network, we charge you for two minutes
and one second. Again that is because we focus on business and
business customers. Business customers are more sophisticated
and are not going to pay for something that they don't use. The
digital one rate plan is different than what we offer.
Imagine that someone went to Minot, North Dakota. It is right
in the middle of nowhere, in the wheat fields of North Dakota.
AT&T does not have a network up there - neither does
Nextel. What they do is they resell analogues services in the
remote areas outside the major urban areas of the US. I should
note that AT&T's EBITDA losses widened in the fourth
quarter. They dropped by about $85 million and why is that?
Because they are charging 11 cents a minute in Minot, North
Dakota or any other city where they are reselling analogue.
They are charging 11 cents to their customer and paying 35-50
cents on the premise that this pledge to be anywhere at a flat
rate price will be made up in the major cities. Quite frankly,
I think they have done that. It is a good business proposition,
but again we are selling to businesses in large measures. In
all 92% of the traffic stays in their home market. Then we are
in 400 cities nation-wide. That is why we don't sell to the
consumer. Again this is part of the business strategy.
We segment the business and so business customers will not go
to Minot, North Dakota. They will go from New York to Miami to
Los Angeles to Chicago to Seattle to San Diego to Kansas City
to Washington DC to Greensboro, North Carolina. We are in all
those cities. We are not in Minot, North Dakota and neither is
AT&T. I don't want to offer a dual-mode phone with a pledge
to offer service in every square foot in the US yet. That is a
very important modifier.
As I said, we have the largest digital network in the US, but
once that network expands - and it literally does every day -
at some point we may engage in the same commitment to our
customers. For example, let us pick another garden spot, Fargo,
North Dakota, where we will provide a service, but on a
But we are very concerned with the customer base we address
today and any complaints by the demanding business traveller,
for example: "Why didn't I get my text messaging for a day or
two hours? Why didn't I get my voice mail?" and ultimately as
we roll out our data products, "why didn't I have data access?"
This occurs, because they are located in the more remote areas
of the US and don't have access to digital technology. We want
to have a greater footprint and more market reach, before we
make that stretch. I think that why we segment. If I had more
of a consumer strategy such as AT&T, I would say that the
digital one rate is a really good programme, but it is costly -
and I think this showed up in AT&T's financials this past
Nextel has invested in a number of international
markets. How do you view the opportunities in Mexico? How many
subscribers do you currently have? What levels of revenues do
you receive from your operations in Mexico?
Akerson: First of all, we don't break down customers
or revenue on an individual country basis. We have built out
Mexico City and plan to build out other cities: Monterrey;
Guadalajara and Teowana. We want to build out major
metropolitan areas, especially along the US border. If I would
look at our total international next year, I would say that our
sales should be in the $150-180 million level. We do not make
public projections, but those are good round numbers.
We only launched last June/July, so I think that is good
progress given where we are. In percentage terms, our
international investments are growing quite well, but we exited
the year domestically at a $2.5 billion run rate. So when you
think about that, we only launched our services in the US in
September 1996 and literally 27 months later, we are at the
$2.5 billion run rate.
How do you view opportunities in the Asia Pacific?
Could you tell us about your operations in China and Japan? Do
you plan to scale up your presence in the Asia Pacific?
Akerson: In China we have an equity investment - it
is in a GSM system and only in Shanghai. It does not conform
with our world-wide technology strategy and differentiation of
services. So I don't think that is a long-term play for us. It
is quite difficult to do business in China.
In Japan we are in with a group of other companies including
Motorola and a Japanese partner that owns a nation-wide
licence. W are quite pleased with progress to date. We have
rolled out service in Tokyo. I think that Osaka is next. That
will continue to build.
We own a company in the Philippines. We have built out Manila.
We started out operations in the late summer and we have the
option of a national licence in Indonesia, but given the
upheaval we have not initiated service or any construction,
until we can better assess economic developments in the
In a recent interview, George Schmitt, the president
of Omnipoint, referred to the benefits of GSM over CDMA. What
do you think?
Akerson: We use iDEN which is an improved version of
GSM. If you make a pure cellular call on our service today, we
have this packetized air interface and we make a decision at
the cell site - depending on how the call comes in, we know
whether it is a direct connect call or a dispatch call. We know
if it is a data call, but we primarily know if it is a cellular
call. If it is a cellular call, we are GSM. If it is a direct
connect, we have done that call down to circuit switching, so
it will go through a wireless switch. We use the same load that
you do in Europe and that George Schmitt would use here in the
US with Omnipoint. But if it is a direct connect call, it stays
in the packetized form and goes through a metro packet switch
and we traverse the network and the call that way. Ultimately,
it is my belief that we will evolve to pure packetized voice,
data, fax and video over Internet Protocol.
There are advantages and disadvantages to both GSM and CDMA.
We think that a hybrid of GSM provides the product
differentiation that Nextel has been able to deliver and no-one
else has. Quite frankly, this goes back to the legacy of this
industry which was a duopoly or in Europe where it was one, two
or three companies. It is a different world in the US today,
where you have anywhere from four-six competitors.
BT and Microsoft recently announced an alliance to
push wireless Internet. How do you view such developments? In
your opinion, what will be the most popular wireless data
Akerson: I think that the potential of wireless data
is huge, provided that it is based on Internet protocols. Until
now wireless data has been a monumental flop. The operators put
together the CDPD. It is slow and cumbersome. It is spectrally
inefficient and has never sold. But if you get on with a
packetized data with Internet applications, it is different. We
literally demonstrated that if you pull up American Airlines
and you are on the way to the airport, you can pull up your
Nextel phone, jump on the Internet, put in your flight number
when you pull up the American Airlines Web page and literally
tell whether your gate was shifted. It can tell you if the
plane was 15 minutes late and you can even confirm your seat
assignment. These are powerful applications to the
sophisticated business traveller.
As I was saying before, the same phone won't be sold to
everybody, because the applications are different. Soccer mums
aren't going to use it that much, because they are not the
corporate road warrior, as we refer to them here in the US.
BT/Microsoft is interesting. I don't think that Microsoft is
the most capable Web partner. Our selection of Netscape was a
bit more insightful, but that is what makes horse races and
stock markets: differences of opinion. Irrespective of how it
all works out, BT and Microsoft are both very capable
companies. They will offer competitive products. Wireless data
has huge upside potential.
Do you think that Calling Party Pays is necessary in
the US for wireless to compete effectively with wireline? Do
you think that the FCC will have to set some guidelines before
this service becomes popular in the US?
Akerson: In the US, things are viewed a little bit
differently. I lived in Europe for three years and went to
graduate school in the UK. I think that it is sheer lunacy for
a government to tell an industry how to be competitive. If the
FCC were to set guidelines, I think that it would be
If Calling Party Pays makes sense, and if it is necessary to
compete against wireline, it will happen. But quite frankly,
all it does is shift the cost. Personally, as a consumer, I
would not see where it would be all that attractive. Obviously,
we watch developments here very carefully and do some work
internally with respect to Calling Party Pays, but I adopt more
of a "wait and see" approach.
How do you view pre-paid? Have you started introducing
this concept to reduce bad debt levels? What levels of churn
has Nextel been experiencing?
Akerson: Reportedly we have the lowest churn rate in
the industry by quite a bit. How do I view pre-paid? We
primarily sell the businesses. Therefore we don't have bad
actors in our customer base, but it is not like consumers. So
that makes our customer base a little more attractive and a
little less likely to be poor payers. So we have not introduced
a pre-paid product. I know that some of our competition has.
For example, small companies such as Omnipoint have. Maybe
some of the larger ones have. Obviously, we can do a check on
Dunn and Bradstreet. As we can do credit checks on businesses
much more easily than we can do on individuals, our credit
history is better than our competition. This is based on
publicly disclosed financials. It is something that we continue
to watch. If we were to see some more slippage, we might be
more interested, but we don't feel that it is necessary right
In view of intense competition in the wireless market
and the inevitability of pricing wars, do you think that
average revenue/subscriber is likely to fall? What steps is
Nextel taking to maintain revenue levels?
Akerson: I think that in the UK it is not quite
double what it is here. That should tell you something. You
guys basically have an oligopoly over there. Everybody kind of
co-operates. It is not that way here. We have already sustained
pretty dramatic price cuts. As you suggest, there may be more.
At the end of the day, rationality prevails. These are
multi-billion dollar networks that we are deploying and you
must service your debt. You must provide a reasonable return to
your shareholders. So the pricing in this country has probably
dropped by over 50% over the past two years and will probably
drop more. It is inevitable.
At this stage I think that we are reasonably close to the
long-range average cost curves, but we are not there yet. So
there will be some more pricing activity. How do we try to
protect against that? The integrated hand set with more
features than everybody else seems to work. For example, the
average revenue/unit in this country across our industry is
just under $40. Our average revenue/unit is $70. How do we do
that? We sell to businesses that are mobile work users and tie
them together in virtual private networks on this "Push to
Talk" feature and roughly our customers are using the phone as
a absolute necessity to conduct their business. More minutes of
traffic traverse our network. Obviously you get that advantage
of spectrally efficient service with digital.
That is why we stay focused on business and on the urban areas
to date, although we have coverage on most major inter-states
in this country as well. But that is to facilitate the business
customer. So while the industry has dropped anywhere from 6-10%
over the past three-four years, our annual average revenue/unit
has actually increased. Our churn is the lowest in the
Can you describe the new service that Nextel plans to
offer customers, providing them with a personalized Internet
"gateway"? Does such a move represent the first signs of
convergence between mobile, voice and data services with the
Akerson: I believe that is true. I would go further.
It is a milestone event. A cellular phone that you can
inter-act - literally we put a predictive 40,000 word speller.
You can have your hand set. If you start spelling the word
organization, by the time you get to the third letter, the
thing starts guessing what the letters will be. Literally
someone trained with a telephone touchpad can tap, I have been
told, 35-40 words a minute. Personally I can only get up to
about 20. Nextel will never be found in the dictionary. But it
will learn 700 words unique to your own usage. So the
inter-activity with the Internet is going to represent a huge
paradigm shift for the wireless industry. It is going to occur
everywhere, any time and anywhere.
How successful has Nextel been in raising capital? Do
you aim to raise any funds this year?
Akerson: We raised $9 billion over the past 30
months, including our line of credit. Last year we raised $2.9
billion. We are not in the market today.
How does Nextel Partners interlink with Nextel? What
is the importance of Nextel Partners? What is the experience of
the management team at Nextel Partners and how does their work
dovetail with that of Nextel Communications?
Akerson: We own 34% of Nextel Partners. We gained an
equity position by transferring our spectrum in what I will
call less urban, more rural secondary and tertiary cities, such
as Magellan, Texas or Omaha, Nebraska. Here the strategy was
that the company had to be very closely aligned. Obviously we
are on the board, as we own a little over a third of the
company. We needed to control consistency in marketing the
message, the marketing positioning, brand recognition, the
brand proliferation within this country, as well as network
quality, network operating parameters, statistics, the
integration, so that it is seamless to the Nextel Partners
group. That will all be part and parcel to the arrangement.
We seated the company with executives from Nextel
Communications and also attracted some very good people from
other companies in the wireless industry. This accelerates the
proliferation of our technology and standards to a wider
footprint in the United States, which I think is very
Why is Nextel Partners completing the build-out of
secondary and tertiary properties where Nextel started
construction? Why doesn't Nextel complete construction? What
are the build-out plans?
Akerson: Nextel plans to spend about $1.6-1.8 billion
this year. Nextel Partners is now funded to the tune of
$750-850 million. We didn't start building in the Omahas of the
world, but obviously we think that it is important that the
secondary cities should be built out. And it was really related
to speed of market. We felt that the Nextel Partners group
could get us into those markets faster than we could, in view
of the multiple projects that we have in our own bailiwick.
What is the time span for repayment of outstanding
debt? How do you plan to lower debt-servicing costs?
Akerson: We have a tiering of various issues that
play out over the next three, five or ten years. We refinanced
$750 million of high-yield debt last year to a lower coupon
rate with better payment terms. As we see opportunities to do
that in the market, we may be willing to do some
recapitalization of our balance sheet. But if we are able to
continue making the progress in the market that we have
experienced in the past, we will be able to service and repay
our debt when it falls due.
What role does Craig McCaw play in Nextel's
development? What is Nextel's role in a grouping that comprises
NEXTLINK Communications and Teledesic?
Akerson: Craig is on the board. He is the chairman of
the operating committee, so we talk periodically. He is
intimately involved and aware of what we are doing and why. He
is a very big and strong resource for me personally as well.
In terms of our role with the other telecoms interests that he
has, they are tangential. This is a publicly traded company.
The public owns 80% of the company, while Craig McCaw and his
family holds the other 20%. We act in the interest of all our
shareholders, so we have very little to do with Teledesic. As
you probably know, NEXTLINK is a competitive local exchange
company. We use them where we can, if it makes sense from an
economic point of view. If it doesn't, quite frankly we use a
competitor of NEXTLINK.
How do you view developments with regards spectrum?
How do you view the comments by the Industrial
Telecommunications Association (ITA) that Nextel's call for the
unconditional granting of 54 waiver requests to convert
licences classified as private mobile radio services to
commercial mobile radio services could set "a dangerous
precedent, giving Nextel virtually unfettered access to
licences allocated for another service"?
Akerson: You will get a predictable response from me.
Obviously we are attacking the old rules and the old regiment.
Some of these rules, specifically those that apply to the ITA,
allocated service not on a wide area basis, but on an
individual site basis. The spectrum was not contiguous and
therefore in my opinion it was under-utilized. People priced
the product as "all you can eat for a flat rate", which would
be described by an economist in this digital age as
Nextel is one of many of the new age wireless telcos,
attacking the old regulatory regime. Naturally that upsets the
apple cart. But in terms of breaking spectrum loose for the
benefit of corporations and the public in general, it should be
done. When I hear someone from the ITA say that we are asking
for these waivers, I will tell you that some 400 waivers have
been provided to our competition. I believe that we should be
treated in the same way as the ITA treats the competition.
What are your hopes and ambitions for the company over
the next two-three years? What global trends do you expect to
emerge in the wireless arena?
Akerson: Over the next two-three years we hope to
continue to penetrate the US market and attain at least free
cash flow status: in other words we can fund all our internal
operations, which we are doing today, as well as all our
capital, without accessing capital markets. We hope to continue
the build-out of our international properties. At some point in
time we want to be one of the two or three best wireless
carriers in North America, extending throughout the Western
hemisphere and to be one of the few great wireless telcos
In terms of world-wide trends, we will see more consolidation.
There will be a move towards wideband wireless and more
sophisticated features. Wireless in general will be bundled
with a broad array of telecoms features that are global, rather
than national in a regional nature.
Several years ago, Nextel was kind of an afterthought. People
didn't even consider us as a real viable threat. I can tell you
that the AT&Ts and Sprints of the world now perceive us as
a strategic competitor. We have come out of the pack without
any regulatory help, and without the deep pockets of an
If I were to characterize Nextel, I would say that we are the
scrappy upstart that gets very few breaks and has carved out
its own niche. At the same time I think that we have delivered
customer growth in underpinning customer metrics, such as ARPU
and churn and we are leading the industry. That makes us worthy
of note, because we have delivered operationally. The question
is, over the next couple of years, where does it take us? You
asked us a good question. Will we get gobbled up? I don't know
the answer to that question. Sam Ginn thought that was the
right path to follow. There are a lot of variables in any
equations like that.