Nextel Essay

Nextel Essay

Nextel was established during 1930s as a mobile radio system services provider. It operates in a wireless telecommunications industry that has become stagnant due to its maturity stage. Until 1980s, the telecommunication networks were limited to radio based telephone services that finally evolved during late 70s into analog cellular systems. Later in 1980s the first wireless telecommunication technology was transformed into second generation (2G) technology that provided vice communication, voice mail, call waiting and text messaging. Further developments lead to huge demand for wireless services, cheaper services, intense competition and customer base of around 110 million by 2000. The industry has reached maturation level with wireless service penetration of 50% and large number of mergers and acquisitions taking place by current players to secure market share and reduce cost.

Nextel has expanded itself from being radio telephone service provider to the largest all-digital wireless coverage in U.S., serving around 5 million subscribers in more than 65 countries. With its technology and business deals with market giants like Motorola and MCI, Nextel became the industry leader in digital wireless services. Nextel produced the highest Average revenue per user among competitors. However, the cellular industry’s growth and constant investment came down with a burst leaving Nextel and other companies with low stock prices and highly saturated market. Nextel’s main competitors like Verizon Wireless, Cingular Wireless, AT & T Wireless and T-Mobile have entered the intermediary 3G market, bundle services and deals with parent companies. Nextel still has its strong partnership with Motorola and iDEN platform that can help it adjust itself and its cost structure to adopt 3G technology in future.

Despite the economic troubles and bad industry condition in 2002 with market maturing and competition getting tough due to new entrants, Nextel announced excellent quarterly results with 26% increase in revenue and 62% increase in domestic operating cash flow along with debt reduction. However, with consolidations becoming a trend in market to secure market share, the investors have put pressure on the market value of Nextel and its shares.

Strategic Problems

1. Nextel though has an edge over its competitors with its iDEN platform, the competitors are rapidly forming mergers and going for consolidations with firms to lower their costs and shift to 3G technology. Nextel’s unique feature of Direct Connect is already in process of imitation by competitors and an advance feature of voice messaging is coming to market. Companies are shifting to 3G technologies which can take longer period and few are relying on 2.5G for intermediate term. Suppliers are forming partnerships with mobile companies to deliver package services. With such rapid developments, Nextel might find itself stuck with obsolete features and lag behind its competitors in adopting the 3G technology specifically given the huge budget required for its implementation and debt burden of Nextel. The threat of losing markets share is quite obvious for Nextel.

2. Even with following the market trends and adopting technology like competitors, Nextel will still either have same market share and customer base as its has now. The maturity stage of Nextel and overall industry requires additional steps by Nextel to increase its market share and since launch of 3G will weaken the dependence and collaboration between Motorola and Nextel, there will be a need for more strong partners to form consolidations and secure share. The government policies regarding mergers and consolidations are also expected to become lenient in order to reduce the hyper competition and therefore, require urgent notice by the management of Nextel.

Suggestions

1. Nextel for current period has its iDEN base too fill in as intermediary service for 3G technology. However, Nextel requires taking initiatives to reduce its interest costs in order to prepare itself for the $3 billion investment for new technology. Nextel can sell off its less productive services or units to record capital gain and pay for its debt. Also the firm should do detailed research on profit and cost of approaching 4G technologies versus 3G technologies. If 4G technologies are found feasible, the company can use it as its marketing tool to surpass competitors. Also apart from Motorola, Nextel should find strategic partners to create packages deals for subscribers and customers.

2. With the consolidation process going on in the industry, Nextel might find itself with similar or even little market share. Nextel should approach different mobile companies and wireless service providers to form alliances or proceed with acquisitions. Nextel has already approached Flarion for 4G technology and can approach current players in market to expand its market share. Similar approached should be used for distribution and supply network to secure partnerships for future. This strategy can also be used to reduce the overall costs for Nextel that has reached $2,869 million in 2001.

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