Nextel Keeps Making The Right Connections

It was Valentine's Day, 1990, and the founders of tiny Fleet Call Inc., Chairman Morgan E. O'Brien and Chief Executive Brian D. McAuley, were preparing to have their hearts broken. They had wangled an appointment with the powerful chairman of Motorola Inc., George M.C. Fisher, to tell him that they intended to seek a regulatory change that would turn upside down one of Motorola's oldest businesses. Their plan: to get government permission to use taxicab-dispatch frequencies to compete with cellular phone companies. They feared Fisher would oppose their effort. Instead, Fisher not only agreed--he bought in. Today, Motorola owns a 17% stake in the company, now known as Nextel Communications Inc.

O'Brien and McAuley seem to have a knack for forming such liaisons. On Feb. 28, MCI Communications Corp. Chairman Bert C. Roberts announced that his company is buying its own 17% stake in Nextel for $1.3 billion. MCI intends to sell Nextel's wireless phone, data, and dispatch services under the MCI brand name--thus forming an alliance to take on American Telephone & Telegraph Co., which is spending $12.6 billion to enhance its prospects in the cellular world by buying McCaw Cellular Communications Inc. Other big investors in Nextel include cable-TV operator Comcast, Japan's Matsushita Electric Industrial, and Nippon Telegraph & Telephone. Although Nextel lost $10 million last year on a puny $34 million in revenue, its market value is a stupendous $9.5 billion.

EARLY LEAD. The tie with Motorola is critical to that giant valuation. Motorola's technology gives Nextel an edge over cellular phone companies. Nextel is using a technology called Motorola Integrated Radio System (MIRS) that is a cousin of the European digital cellular standard known as GSM. One MIRS advantage: It has given Nextel an early lead in transmission of data. For example, brief text messages--up to 140 characters--can be sent even to someone who is already on the phone.

While Nextel forges ahead with MIRS, cellular rivals are squabbling. They remain divided over which of two other digital cellular standards to embrace. Many are holding off deployment of digital gear as a result. Even McCaw, the leader in converting to digital, says only about 1% of its customers--around 30,000 people--are using digital phones.

Transmission of computer data--potentially the fastest-growing wireless market--is a particular bugaboo for Nextel's rivals. The leading standard is called Cellular Digital Packet Data. But McCaw said on Feb. 28 that it wouldn't finish rolling out CDPD in all markets until the end of 1994, six months later than planned. Meanwhile, there's likely to be a delay in the hotly disputed auction of new frequencies for Personal Communications Services, which cellular operators have been counting on to reach more customers.

In contrast to the cellular muddle, Nextel has a straightforward game plan. That attracted John E.Z. Caner Jr., who quit as PacTel Cellular's director of wireless data development in January, 1993, to take the same job at Nextel. Says Caner: "I saw the opportunity of starting with a clean sheet of paper."

Nextel began its new service in Los Angeles in January and promises that by the end of 1996, it and two other companies that use Motorola's MIRS standard will reach 95% of the nation's population. Cellular investors are skeptical: "You couldn't look at their construction record and say, 'Gee, they'll do it on time,'" says John P. Reddan, an analyst with Moran Asset Management Inc. in Greenwich, Conn.

Nextel does have hard work ahead. But in contrast to the cellular industry, its strategy is set. With the marketing and financial muscle of MCI and Motorola's technology, Nextel has nothing left to do except prove that it's really worth nearly $10 billion.

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