Clarification on Nextel. I know a lot about PCS and cellular. However, while I have looked at Nextel, it has been a while. When I do a full short case, I will be glad to post my findings. But here are my thoughts, with the caveat that I may be a little off on the specifics.
Yes, Nextel didn't pay as much for their spectrum. However, in the long term the cost of spectrum is dwarfed by the cost of buildout, marketing and operations. But, the lower cost is certainly an advantage for Nextel over some of the competition.
You are correct, Nextel's lower frequency carries a greater distance than the high frequency PCS band. This will make the initial buildout cheaper as you need less infrastructure. This is also superior for rural application where subscriber density is lower. And yes, you can do additional cell splitting to increase capacity, although to a lesser extent than PCS.
I am not an RF engineer, but I know a little about this area. I think there is a limit to splitting as eventually you cannot control the interference between cells. In this regard, a high frequency signal will allow more splitting and ultimately more density than an equivalent lower frequency signal. So in this regard, Nextel has an initial advantage that ultimately becomes a slight disadvantage in the urban areas.
The real problem is they have less bandwidth to begin with. I think they have 10 to 15 MHZ vesus the 25 to 30 MHZ of the cellular and PCS providers. More bandwith requires more radios, but the same number of towers, power supplies and marketing programs. So long term, the providers with more bandwidth in a market will have lower costs due to economies of scale. Also, I haven't done the math, but in a price per bandwidth, Nextel's spectrum doesn't seem so cheap after all.
Next, the technology they use has less capacity. GSM/TDMA/CDMA offer 3 to 8 times the capacity of traditional analog cellular. Thus letting you have more subscribers per bandwidth. The ESMR technology does not have the equivalent capacity per bandwidth. So again, PCS and cellular (once they go digital) have long term better economies of scale.
Finaly, Nextel has one equipment supplier, Motorola. While Motorola wants them to succeed and will drive costs down, it is unlikely they will match the prices of PCS/Cellular equipment. PCS/Cellular is a tremendously larger market for handsets and equipment. There are many competitors and substantially more R&D dollars being spent on cost reduction, performance enhancement and miniturization. Just like Macintosh versus Windows, the larger, more competitive market drives costs lower. So once again, better long term economies for the PCS/Cellular competitors.
I don't know the timing of when these factors affect results. In the initial period, Nextel should rack up impressive subscriber growth. But long term, they are at a serious disadvantage, and have much less probability of being a profitable business. It is not on my immediate research list, so I don't see any real danger for 3 to 6 months at least. But when it is time, it will make a wonderful paired trade with a PCS play like PTEL or OMPT (ex. long PTEL and short an equivalent amount of Nextel for a market neutral trade)
Regards
Archer |
