The Allure of Nextel

Beneath the spate of recent reports and speculation about a possible AT&T Wireless-Nextel marriage lie two indisputable facts. First, as competition heats up in the wireless-telecom industry so does the tussle for high-value, particularly corporate, customers. Second, Nextel continues to win bunches of these valued customers.

"Nextel has very high average rates per user (ARPUs), approximately $72 (a month)," said Elliott Hamilton, Strategis Group global wireless group director.

That compares to an industry average of approximately $41.24 a month, according to the FCC's most recent industry analysis.

"They also have the highest minutes of use in the industry per subscriber, approximately 480 minutes per month," Hamilton said.

Nextel's recent agreement to acquire Chadmoore Wireless, and its purchase of 800 licenses in the FCC's September 800MHz auction also reveal evidence of the company's growth and subsequent quest for spectrum.

If realized, the Chadmoore acquisition will add 55 million POPs to Nextel's network. Chadmoore's spectrum covers outlying regions of Nextel's top urban markets, according to Ben Banta, Nextel vice president of communications.

Nextel needs additional spectrum to support next-generation services and to accommodate its expanding customer base, which Hamilton attributes to Nextel's practice of per-second billing, the absence of roaming fees for its service and the direct-connect calling feature it offers.

One of Nextel's charms is that it operates with a minimal amount of spectrum.

"Any U.S. carrier who would look to acquire Nextel would only have to count 10MHz towards their spectrum cap," Hamilton said, adding that most providers are already within 10MHz to 20MHz of the 45MHz cap.

"That's why AT&T has indicated that they are looking to Nextel as a possible acquisition or as a partner," Hamilton said. "Nextel has also indicated that they are interested in getting a partner as they compete for new spectrum."

Unfortunately, Nextel's network technology, iDEN, also presents challenges for potential buyers. The technology is incompatible with TDMA, CDMA and GSM.

Combining iDEN with an incompatible technology would require the use of dual-mode handsets. To complicate matters, Nextel largely depends on Motorola, which increases the probability of handset shortages.

Some analysts argue that an AT&T-Nextel merger wouldn't be feasible.

"As far as reselling service or offering some partnering type of service, there's always an opportunity for that," said Phil Redman, Gartner Group senior analyst. "But as far as merging their network systems together and offering dual-mode phones that work on both Nextel's system and AT&T's, there just isn't much sense of something like that happening."

But Redman conceded that a merger between the companies would increase Nextel's distribution and, perhaps, boost AT&T's standing in the marketplace.

"It would be nice to see a renewed energy within AT&T on the wireless marketplace," he said. "However, the technology to integrate them, I don't believe that it's around right now."