Nextel grows subs, but cuts workforce

Nextel Communications added 695,400 new global proportionate digital subscribers during its first quarter, ending up with a total of about 8.3 million, a 50% increase from the year previous. However, higher customer-acquisition and handset-upgrade costs demanded that the company implement cost-cutting measures, including a workforce reduction of 5%.

Nextel also added 520,300 domestic subscribers in the first quarter, which is better than its reduced forecast of 500,000. The company now has a total of 7.2 million domestic subscribers and 1.04 million international subscribers, and expects to add 2.0 million U.S. customers over the remainder of 2001, said John Brittain, Nextel chief financial officer, during the company’s earnings call. U.S. revenue is expected to reach $7 billion this year, while estimates predict capital spending will hit $2.5 billion in 2001, down from a previous estimate of $3 billion, he added.

The announced job cuts, just one measure the carrier is taking to cut costs, have affected 16,000 members of its U.S. workforce.

“We are making changes that will have immediate positive financial implications on our business,” said Tim Donahue, president and CEO of Nextel.

Other cost cutting changes include lowering the average equipment subsidy on all of the phones it sells, implementing a lower commission structure and allowing for cooperative advertising allowances for indirect sales channels. Although the company must reduce equipment costs, it maintains that the Java-enabled i85s model it announced during the quarter has a substantially lower subsidy than other phone models.

Nextel began promotions for its target high-end audience in the quarter, which offered aggressive service and equipment pricing. Although its promotions gained market share, some of them attracted price-sensitive customers that don’t fit the company’s customer profile, which was a reason the carrier suffered slightly higher customer acquisition costs, Donahue said.

To continue driving customer growth the carrier will increase its focus on more low-cost distribution channels such as its company-owned stores, the Web and telesales, he continued. The company is accelerating its investment in customer-care facilities as well.

Donahue remains confident that tweaking distribution will help Nextel to reach its subscriber-growth expectations this year without missing a beat.

“I believe Nextel still is well positioned to handle the demand of a growing customer base and we have done a good job at looking at market segmentation,” he said. “We will continue to use models to help direct sales efforts toward the high-value, low-churn customer base.

“I feel comfortable that we can maintain strong growth,” Donahue continued. “We implemented some of the [cost-cutting] changes in early April and we are off to a good start. Assuming the economy holds up, we will continue to grow our business and hit the number by year end.”

Beyond year-end results, the carrier is continuing to focus on its wireless Web efforts and believes the wireless industry will reach penetration rates of between 70% and 80%, Donahue said. About 5.3 million Nextel subscribers use Internet-enabled phones, he added.

“There is tremendous potential in wireless communications and we feel fortunate that we can participate in a dynamic and growing industry,” he said. “Nextel, with its differentiated approach to wireless, expects to garner its fair share of the best of these new subscribers over the next five years.”