Washington Post Article:
Renewed Nextel Settles Into N.Va.
Improved Technology Revives Wireless Firm
By Mike Mills
Washington Post Staff Writer
Monday, August 26 1996; Page F15
The Washington Post
Earlier this summer, Daniel Akerson was scouring the commercially zoned asphalt byways of Northern Virginia for a site suitable
for the new headquarters for Nextel Communications Inc., a wireless communications company he had just joined as chairman,
when he heard from Steven Zecola.
Akerson and Zecola were colleagues when Akerson was at MCI Communications Corp., where Akerson served as president in
1993. Both had tried, and failed, to persuade MCI to become a pioneer in next-generation cellular telephones. Zecola left to form
Go Communications, but his company folded earlier this year, and now he was telling Akerson that Go's former headquarters,
just off the Dulles Toll Road in McLean, was available.
The next thing they knew, Nextel employees, relocated from Denver and New Jersey, were busy unpacking boxes last week at
their new 80,000-square-foot offices.
A year ago, the smart money was betting that Nextel would be packing it in, not unpacking. In early 1994, MCI had committed
to invest $1.3 billion in Nextel. But MCI backed away a few months later, amid ego-driven disputes with another prime Nextel
investor, Motorola Inc., and reports that Nextel's service -- a hybrid of a two-way radio and a cellular phone -- well, that it didn't
work. Nextel spiraled toward insolvency.
But today it's back, freshly scrubbed after a cash infusion by cellular tycoon Craig McCaw, vastly improved technology from
Motorola and a top-to-bottom management overhaul that includes Akerson and several McCaw veterans.
"We've put a strong team around an improved technology we can all be proud of," Akerson said.
Nextel's strategy differs from that of any other wireless company. Nextel is the only company that combines features of a radio
dispatch service with a pocket cellphone, voice mail and pager. And, it's the first -- and so far only -- one with a single nationwide
digital wireless network.
The leading feature of the service is the ability to instantly communicate with "work groups" of one or several people, using Nextel
phones, by pressing a button on the side of the handset. No numbers need to be dialed. The work groups can be scattered as far
as Washington to Boston, or even farther if Nextel decides there's a market.
Instead of selling to a mass market of consumers, Nextel is focusing on the 67 million U.S. workers who are either totally or
somewhat mobile in their jobs and need to communicate with colleagues on a regular basis.
"Think of it this way," explained Tom Kelly, Nextel vice president of marketing. "When Captain Kirk hits his chest and says,
`Beam me up, Scotty,' that's two-way communications, not cellular."
Michael Balhoff, senior analyst for Legg Mason Wood Walker in Baltimore, said many people in the industry disparage Nextel's
combined cellular, paging and "dispatch" service as limited to taxi drivers and construction crews.
But Balhoff said Nextel's offering makes it "the only [wireless] company so far along in differentiating themselves" from the
half-dozen other cellular and wireless providers that will flood the market in the next few years.
"There is the potential for a significant white-collar dispatch market that wants instant conferencing," he said. "Doctors and nurses,
real estate brokers, investment bankers, anyone working in a group environment."
That business plan was the vision of company founders Morgan O'Brien and Brian McCauley, who stitched together a nationwide
Nextel network by snapping up licenses held by mom-and-pop dispatch companies nearly a decade ago. They are still with the
company.
But Nextel got off to a bad start when Motorola's earlier Nextel phones suffered quality problems. Motorola attempted to
squeeze too much digital data through too small a slice of the airwaves, and calls during market trials were garbled and full of
echoes.
"The technology didn't work," said Nextel President Tim Donahue. "The voice quality was woefully lacking."
After MCI pulled out, Nextel's stock slipped from a high of $54.87 1/2 in December 1993 to $9.37 1/2 exactly two years later.
Analysts all but wrote off the company, but McCaw saw an opportunity.
"Craig saw a niche that no one else was filling. He saw spectrum that was undervalued, and he saw he could do something for the
company," said Bob Ratliffe, Nextel vice president of communications. Not least of all, "this was a great bargain."
McCaw today owns a $350 million, 9 percent stake, and has options to increase his holdings to $1.1 billion in five years.
Motorola this year unveiled a new Nextel phone, using only half the signal compression of the old phones to improve quality.
Some 20,000 units now are being tested in Atlanta, Boston, Chicago, Denver and Detroit. The new handsets will be available in
the Washington area early next year for about $400, with dime-a-minute rates for dispatch calls and competitive cellular rates, the
company promises.
Akerson said even he was not fully convinced that the new technology worked until the Summer Olympics in Atlanta, where
officials and security racked up 5 million calls in 17 days using 5,000 Nextel phones. Search crews and government officials at the
TWA 800 crash site also have been using the phones -- and using their digital security features to keep away from
eavesdroppers.
"This unit becomes an absolute imperative for people who use it," Akerson said, holding one of the new phones. "Once customers
get it, they don't want to give it up."
This is not all vaporware. Nextel now has 800,000 traditional two-way dispatch units in service, and 200,000 of the earlier
version Motorola digital phones, which work well as two-way radios but have inferior quality when in cellular mode.
But Nextel's not out of the woods yet. Akerson and his team are now busy showing their phones to bankers on a roadshow to
secure a $1.5 billion line of additional credit. It is halfway through its plan to install some 5,000 radio towers nationwide, but
Nextel still must negotiate rights to many sites. Also, a lot of explaining remains to be done to analysts who still think of Nextel as
a sinking enterprise.
"The financial community is still viewing us as a start-up company, and we're not a start-up company," said Chief Financial Officer
Steven Shindler, who was a wireless industry analyst for Toronto Dominion Bank before joining Nextel in April. "We have $1.5
billion of equipment already in the ground and a million subscribers."
Then there are the phones, which are so specialized they risk becoming extinct if they don't catch on in the broader global market.
Nextel remains beholden to Motorola as the only manufacturer of its phones, while Nextel remains Motorola's only customer for
them. Both companies are trying to change that dependency by encouraging other companies to make and use the units.
Still, the new Nextel team is optimistic that the company's worst years are behind them.
"All the pieces are now in place," Shindler said. "We have only one thing to do: attract and retain customers." |
