Nextel Communications dials up all-in-one strategy

Westchester County Business Journal, Apr 06, 1998 by Z, B

Cellular telephone bills for A. DeVito & Son Inc. were running $15,000 a year until two months ago when the Katonah general contractor called Nextel Communications Inc.

Nextel "has drastically cut out cellular telephone costs--at least by a half," said John DeVito, president of the company that has been doing business in Westchester and Putnam counties for 90 years.

Known as Nextel's Business Network, the service allows communication among fellow workers as well as outside businesses that subscribe to the same system.

DeVito's construction workers can talk to employees at a lumberyard. Network members use a small wireless communication set that includes such features as voice mail, paging and two-way radio calls.

Among industry groups participating in the networks are construction, banking, real estate, government and health care.

DeVito had a cellularphone before switching to the Nextel system, which he said is much "We can talk among ourselves within the company and (with) anybody that is within the network for basically a fraction of what it cost in cellular phones," he said.

"What's more interesting is ... we have four more phones out there. We increased the number of phones and decreased the costs."

McLean, Va.-based Nextel has a regional headquarters in White Plains.

The business networks follows last year's introduction of a new generation of wireless communications systems. Nextel has about 100,000 subscribers in 110 networks nationwide. A breakdown of the number of subscribers for Westchester was not available, the company said.

Alan M. White, Nextel's marketing communications manager, said the networks were started after the company realized the new technology could enhance both inter- and intra-company communications.

Subscribers can talk within Nextel's regional service area, from New Jersey to Springfield, Mass. Businesses pick a network based on individual needs. Each business may join only one network and must use a Nextel phone to communicate.

Fees vary. Basic service, which costs $60, allows members unlimited talking time.

The company is working on other products, but a Nextel official said it was too early to release details.

Nextel grew enormously last year as membership rose to 1.27 million, of 323 percent above 1996. Its networks now cover 400 cities, or 75 percent of the U.S. market, the company said.

"I think the most significant aspect for Nextel has been the dramatic customer growth," said John C. Pescatore, president of Nextel's New York metropolitan operations. "The growth has been very strong."

Industry analysts attribute Nextel's success to its competitive pricing structure and a lack of competition.

"The company has been doing very well," said Robert Egan, research director for wireless services at the Gartner Group in Stamford, Conn. "They have a lot of vision."

However, Egan cautioned that the company may face fierce competition in the future and a possible slowdown in its growth.

"For Nextel to be successful, they need to avoid competition," he said, adding the company should focus on serving businesses rather than mass consumers--an area Nextel plans to get into.

"I am concerned about that," said Egan. "They would undersell their capabilities and overload their networks(and) that could have a secondary effect on business customers."

Pescatore emphasized that Nextel remains committed to its core customers. "We really want to be the leader in business communications. That is our mission."

Nextel's rivals include Bell Atlantic and AT&T Corp. But it expects to outdo them with its unique all-in-one package digital phone system.

"We are the only company that brings it under one roof," Pescatore said. "We distinguish ourselves from our competition this way."

Despite increased membership, Nextel has yet to make profits. Its revenues jumped 122 percent last year to $738.8 million. Yet, the net loss was $1.64 million, or $6.59 per share, against $556,020, or $2.50 a share in 1996.

The company said the loss resulted from early retirement of debt, costs of international expansion and dividend payments to preferred stockholders.

Outside observers see some bright light in Nextel's figures. An internal research report prepared by Tim O'Neil of Soundview Financial Group Inc. in Stamford said the company's operating cash flow loss dropped to $122 million in the fourth quarter from $118.9 million in the previous quarter.

"The actual earnings per share loss was in line with our estimates after including all extraordinary taxes," he wrote.