iDEN directly connected to revenues

Motorola may seek royalties from other vendors

As Nextel Communications reportedly prepares to award contracts for CDMA 1X technology, analysts wonder how much will go to Motorola, the wireless carrier's sole infrastructure and handset supplier to date.

Although Nextel says it has not decided formally whether to migrate its integrated Digital Enhanced Network (iDEN) to 1X technology, the carrier told Telephony earlier this summer that it was soliciting bids from various CDMA 1X vendors. It also released a request for proposal from CDMA innovator Qualcomm regarding 1X technology's ability to support Nextel's push-to-talk, direct-connect feature, the carrier's main differentiator.

According to UBS Warburg, about 20% of Motorola's infrastructure revenues come from iDEN technology, Motorola's proprietary digital technology that integrates a two-way radio, cellular service and pager in one device (see figure). Nextel is the company's largest iDEN customer. Canadian iDEN operator Telus Mobility has outlined definitive plans to migrate its network to 1X technology as well.

Motorola's revenues from iDEN infrastructure (in billions)
1999	2000	2001	2002
$1.1	$1.6	$1.5 (estimate)	$1.1 (estimate)
Source: UBS Warburg

Analysts say Motorola likely won't win all of Nextel's 1X business, leaving a question mark on future revenues. But people familiar with Motorola's plans say the company has devised a way to receive royalties on the direct-connect feature, regardless of which vendor Nextel chooses.

Publicly, Motorola is vague about how it may license the technology.

“We don't have any agreements to license the technology today,” said John Touvanas, senior product marketing manager for CDMA systems. “I would expect we would have the technology and the rights to how to deploy that on CDMA. Some operators would like to see it in the standard…. We don't know if it will be a proprietary system.”

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Nextel doesn't want to share its direct-connect technology with the rest of the CDMA world because it has given the carrier a huge advantage in the lucrative business market, industry watchers say. The number of direct-connect minutes continues to skyrocket on Nextel's network, despite competitors' efforts. Since 1999, carriers such as AT&T Wireless and Sprint PCS have offered mobile-to-mobile calling and group calling features in an attempt to target Nextel's market.

“There has been a strong desire by operators to have an offering similar to Nextel's,” said a source from one CDMA vendor. “They always have recognized that they could lose share to Nextel.”

CDMA operator Sprint PCS told analysts it plans to offer a Nextel-like push-to-talk service on its 1X network by 2002. Analysts suspect Sprint PCS may deploy a push-to-talk feature developed by Qualcomm called Q-Chat. Sprint PCS declined to comment.

“I don't think anyone can deploy it right away,” said Tim O'Neil, wireless analyst with Wit SoundView. “There is a cost.”

U.S. PCS and cellular operators can offer dispatch service under FCC rules, but handsets remain an expensive obstacle. In the past, Motorola's vendor competitors have failed to replicate direct-connect technology in a cost-effective manner. Morgan Stanley Dean Witter believes other operators will have difficulties implementing this push-to-talk feature very quickly or matching the performance of Nextel's direct-connect feature.

Nextel agrees.

“I don't know how anyone is going to provide anything close to what direct connect is,” said a Nextel spokeswoman.