Wireless carriers to take on Nextel with push-to-talk

Digital trunking operator Nextel Mexico will face competition in its lucrative corporate market once mobile operators start to deploy their own push-to-talk services next year, analysts and industry players told BNamericas. "We believe there is a huge risk of them losing their main competitive advantage, which is their push-to-talk capability," Pyramid Research's regional manager for the Americas group Carlos Rodriguez said. "The window of dominance in that market for Nextel with their advantage of push-to-talk is going to close in the next year or year and a half." Nextel Mexico uses Motorola's Iden digital trunking technology to provide push-to-talk or walkie-talkie services primarily for companies with groups of workers spread out over wide areas, such as a sales force or construction crew. The company reported 580,700 subscribers at the end of the second quarter, equivalent to an 85% market share. However, push-to-talk technology for mobile operators will soon end Nextel's privileged position in the corporate segment. Solutions for operators using CDMA1x technology are already commercially available, and push-to-talk for GSM will be available soon. Verizon Wireless started offering push-to-talk in the US in August and the other major US wireless carriers are following suite. The beauty of push-to-talk is that it uses a wireless operator's existing infrastructure and requires only marginal investments in hardware and software, according to Ericsson Mexico spokesperson Raul Lucido. "We think the Mexican market is very promising for that technology," Lucido said, adding that his company has already started demonstrating its Ericsson Instant Talk product. MEXICAN CARRIERS MULL OPTIONS Mexico's third largest wireless carrier Iusacell (NYSE: CEL) is so far the only mobile operator to have outlined plans to offer walkie-talkie services in 2004. "Iusacell is continuing to explore push-to-talk and is currently in talks with several suppliers for handsets. Service could be ready toward the end of this year or early next year," a company spokesperson told BNamericas. The country's biggest operator Telcel - which reported 21.3 million subscribers at the end of the second quarter and a market share of 77% - and second place Telefonica Moviles Mexico say they are focused more on expanding coverage of their GSM networks than making a foray into a new technology. "This is not a core issue. Our engineers are looking at it like they look at other technologies, " Telcel spokesperson Patricia Ramirez said. "Right now we are more into optimizing our network quality, expanding GSM [coverage], and [offering ] new services." "We are in a study phase to see if we offer the service or not," Telefonica Moviles Mexico institutional relations director Juan Antonio Ascarraga said. Unefon, the fourth largest wireless operator, needs to upgrade its CDMA network to 1x before looking at push-to-talk, according to a company official. When mobile operators do launch push-to-talk services, they will undoubtedly go after Nextel's corporate customers. "It's an expensive handset you can't go to the mass market with, so their main interest is to go after Nextel's high end corporate clients and that is the only thing that would make sense for them subsidizing these handsets, " according to Pyramid's Rodriguez. NEXTEL UNPHASED BY COMPETITION Greater competition in Mexico could spell trouble for Nextel Mexico's parent company US-based NII Holdings (Nasdaq: NIHD). Mexican operations accounted for 89% of NII Holding's US$63mn operating income before depreciation and amortization in the second quarter. Even so, Nextel Mexico business development vice president Gustavo Cantu is upbeat about Nextel's future in a more competitive landscape. "We have competed before with push-to-talk technologies, including Iden technology, and in those cases we have come out on top. We have a lot of experience in push-to-talk. We have a solid business plan, specialized services and high end users, " he said in a recent interview. Indeed, Nextel Mexico's strengths go beyond its push-to-talk offering. The company has a specialized sales force and data solutions aimed at the corporate market. Nextel also started offering cross-border service in some parts of northern Mexico in partnership with US sister company Nextel Communications (Nasdaq: NXTL). Mobile operators are almost bound to face start up problems with push-to-talk technology. US media has reported Verizon's push-to-talk service as inferior to that of Nextel's because of longer waiting time to set up calls and time lags during calls. Where Nextel Mexico is vulnerable is its coverage, as digital trunking is not available in all of the cities it serves, and the user patterns of its white-collar clients make them prime targets for mobile operators. While blue-collar workers use heavy-duty handsets and rely more on Nextel's walkie-talkie service, white-collar clients use handsets similar to those sold by mobile operators and make more regular phone calls than their blue-collar counterparts. "In the short term there is very little the cellular operators can do to take away [blue-collar users] because of the handset. But they can and will take away the white-collar workers, which have the biggest ARPUs because they have a combination of push-to-talk and voice minutes, " Rodriguez said. "That is really the segment they need to take care of and keep happy with new applications."