McCaw Invests $1 Billion in Nextel

Journal Record, The (Oklahoma City), Apr 6, 1995

NEW YORK (AP) _ Cellular phone entrepreneur Craig McCaw on Wednesday said he would invest up to $1.1 billion during the next six years in Nextel Communications Inc., a mobile radio company that is building a nationwide digital network.

The action represents an endorsement of a relatively obscure niche in telecommunications by someone who built a multibillion-dollar fortune getting in at the start of the cellular business 14 years ago.

The news sent Nextel's stock up $3.37 to $16.62, a 25 percent jump, on the Nasdaq Stock Market. Shares of other mobile radio firms posted sharp increases.

"We think it's a brilliant coup on his part," said Herschel Shosteck, president of Herschel Shosteck Associates Ltd., a cellular market research firm in Wheaton, Md. "He's bought a system that is operating, has customers and is over a year into the maturation of a new technology."

The investment comes about seven months after McCaw sold McCaw Cellular Communications Inc., the nation's largest cellular telephone firm, to AT T Corp. for $11.5 billion.

McCaw became AT T's largest individual shareholder in that deal and said Wednesday he would hang onto his AT T stake, about 14 million shares worth $728 million. While Nextel and AT T may compete for some customers, their broad strategies do not conflict, he said.

"I'm not pulling punches from AT T," McCaw said. "I'm trying to find ways to do business opportunities that are less competitive with what other people would naturally do. I don't see this as in (AT T's) interest as much, therefore I don't feel I have that much conflict of interest."

He declined a position on AT T's board so he could pursue outside investments. A year ago, he invested a few million dollars in a start-up firm that is developing a global communications satellite system.

"I view myself as flexible in places we might go," McCaw said. "I'm not going to do too many things at once."

McCaw and members of his family, through their private investment firm, will initially purchase about $300 million of Nextel preferred stock and $64 million of common stock, representing about 10 percent of the company. They will have options to purchase another $700 million in common shares during the next six years.

Nextel's executives have previously said they would like to push broadly into the consumer market and compete with cellular phone carriers. While that may happen sometime, they said Wednesday their first focus would be the existing market of vehicle fleets and mobile workers who use two-way radio.

McCaw encouraged the company in that direction, said Morgan O'Brien, chairman of Nextel. But market conditions, most importantly the lower cost of cellular to consumers, played a role in the strategic shift.

"We're not immune to what's going on in cellular," O'Brien said. "There's a lot of attention there. There's not as much with this opportunity here. The technology, our customers, our heritage, everything suggests go for this strategy."

Nextel is putting the finishing touches on a series of acquisitions that give it a nationwide presence. The Rutherford, N.J., company last year started offering an advanced mobile service that allows both two-way radio and cellular telephoning through the same handset.

It is one of the first to use digital signals that, because they're expressed in the language of computers, can intermingle voice, data and even video transmissions efficiently and clearly.

Nextel has 19,000 customers for its digital service, chiefly in California. The company in just the past few weeks turned on systems in Chicago and New York. It has more than 750,000 customers on existing two-way systems.

A mobile radio rival, Geotek Communications Inc., will launch its first digital system in Philadelphia this summer. Its chairman, Yaron Eitan, said McCaw's investment in Nextel validates the growth potential of the specialized mobile radio market.

But he said, "Eventually, it comes down to what the customer would like, not necessarily who owns what or who is the big shareholder."

O'Brien and Brian McAuley started Nextel in 1987 to buy mobile radio licenses with an eye toward converting those systems to digital technology.

In February 1994, MCI Communications Corp. said it would invest $1.3 billion in Nextel and possibly link its long distance service to the system. But MCI backed away a few months later when Nextel purchased frequency licenses from Motorola Inc. in a stock deal that gave Motorola a big stake in the company.

Motorola manufactures the combination two-way radio and telephone handsets used by Nextel's subscribers. The company in February said it would license that technology to other manufacturers, hoping to broaden the customer base.