TIM DONAHUE, NEXTEL COMMUNICATIONS

Wireless infrastructure vendors might argue that the industry's economic prospects sank a little deeper and a little further away from recovery in the first part of this year. But that's not the attitude of some wireless carriers. Nextel Communications President and CEO Tim Donahue thinks the signs of recovery are all around us.

“If you are looking for tipping points for the industry's growth, you can see it in the continued strong growth of minutes,” he said. “People are using the service and continue using it to a greater extent. Also, wireline replacement is happening. Users are giving up their wireline access lines to go wireless.”

While industry observers predict that large network vendors will continue to restructure and lay off workers amid poor spending forecasts, these reports may not provide a complete depiction of the industry's health. “Networks keep improving,” said Donahue. “We are building additional capacity without the large capital expense of additional base stations.”

That attitude is emblematic of where the telecom industry is heading, and how the strength of companies will be measured in the future. Donahue said Nextel is aiming to keep capital expenses under $1.8 billion this year and hopes to have that figure closer to $1.2 billion in 2004.

Rather than exemplifying how the industry's economics continue to falter, those declining numbers are symbols of strength. Instead of adding new infrastructure to expand coverage and capacity, Nextel turned to its primary vendor, Motorola, to come up with more refined vocoder technology to upgrade existing facilities. The company also outsourced other network-related capital spending projects to three different construction firms, realizing the most cost efficiencies by doling out the work to competing vendors.

Mobile carriers' focus on leveraging existing network assets and tightly managing spending is indicative of how their years of $5 billion annual capital expense budgets have likely come to an end. Most carriers spent several years spending their way into debt, first by building out networks and later by upgrading to digital technology. By the time the telecom industry began its swoon in 2000, most wireless carriers, including Nextel, were already underwater. Despite layoffs and other cost-cutting measures, the company reported a $2 billion loss in 2001.

But by slashing spending and curbing operational expenses, Nextel reported a $1.2 billion profit in 2002. The company also climbed its way back by being expanding one particular part of its business — sales. Throughout 2001 and 2002, Nextel restructured its sales organization to better focus on a small group of vertical industry markets, distributing all its applications to cover 27 different customer segments. “We tie all of our service distribution directly to those segments,” Donahue said.

That kind of approach is likely to be another hallmark of the mobile industry of the future. Other companies such as Verizon Wireless and Sprint PCS have conducted similar overhauls in their sales approaches to better target and respond to corporate customers. Typically, these strategies align sales forces into four to six different verticals, with dozens of more specific customer segments within the vertical. The end result is often the development and packaging of applications that are customized for the needs of specific users, rather than distributed “bucket-style.”

“Targeted distribution channels allow you to listen only to your customers and what they want when you are trying to figure out what to do next,” Donahue said. “You never do something just for the sake of doing it.”