AN ARTICLE YESTERDAY ABOUT NEXTEL COMMUNICATIONS INC. FAILED TO IDENTIFY JEFFREY HINES. HE IS MANAGING DIRECTOR AT DEUTSCHE BANC ALEX. BROWN. (PUBLISHED 06/12/99)
In late 1995, cellular phone king Craig McCaw announced he would invest $1.1 billion in a struggling wireless company called Nextel Communications Corp. The question most people wanted to ask him was "Why?"
Nextel offered little to work with. The company had virtually no spectrum -- the radio frequencies required for transmitting wireless signals. And, because it essentially consisted of three merged companies, employees were spread across the country, with no center of control.
The cellular phone Motorola manufactured for Nextel looked ridiculous -- as graceful as a brick but less useful -- and it barely functioned.
Fast-forward three years. Nextel is now a powerful force in the wireless industry, thanks to a scrappy management team made up of many MCI Corp. alumni, such as chief executive Dan Akerson; a marketing approach maniacally focused on the business customer; and a willingness to break from cellular industry norms.
And finally Nextel is getting some recognition.
"We've done a hell of a job building this company from nothing," President Timothy Donahue said during a recent interview at the company's new offices in Reston.
But the bigger Nextel gets, the greater the threat from even bigger competitors, such as AT&T and Sprint PCS. These rivals are beginning to woo the business customers that Nextel has won over with features such as "direct connect," which allows mobile employees to communicate easily with their colleagues. Nextel needs money to keep up and expand. One deal, with MCI WorldCom Inc., fell through last month. But Microsoft Corp. recently invested $600 million in the company to help it expand its digital network and offer a full range of Internet services by the end of the year.
And, earlier this week, ahead of schedule and ahead of competitors, Nextel introduced its Internet-ready phones, designed to access a limited selection of Web offerings, such as e-mail.
The task of offering Internet services and the threat from competitors such as AT&T -- which announced yesterday it would offer a service dangerously close to Nextel's "direct connect" feature -- present formidable challenges to Nextel, which has prided itself on being first, and being different.
"Nextel's coming to another inflection point," said Akerson, whose favorite question to management is "What have you done for me lately?"
"We're going to have to attack our own business if we are going to launch it to another level."
Privately, industry competitors and others who have dealt with Akerson call him intense, at best; at worst they call him every name in the book. But most will grudgingly agree that these characteristics are what make him successful.
Akerson does not apologize for what he likes to call his intensity. "I've worked with a lot of people in my life and the ones that bother me most are the ones that want to be loved," he said. "I want to be respected."
Donahue is the more lovable one -- the people person -- and plays a good No. 2 to Akerson, the Naval Academy graduate and financial whiz.
"Tim is someone whose attitude is one where he kind of wants to reflect on the accomplishments . . . and I say, `Tim, we don't have that luxury, we are still unprofitable.' "
And, said Akerson, it would be easy to lose the edge. For one thing, "there's a whole new business paradigm. . . . We're now an Internet company."
To deliver the promised Internet services to its customers successfully, Nextel will have to retrain sales and customer support staff, shift resources and "reconceptualize" the business to think even more about what kinds of applications it can deliver, Akerson said. Plans include dividing the marketing and sales forces into industry-specific teams that can work with companies to develop customized software applications.
Nextel executives agree that there is a lot to put in place between now and the launch of Nextel online. But, said Akerson, the prevailing mentality at Nextel is "ready, fire, aim."
It was Nextel that first rocked the industry with novel offerings such as no roaming fees and one-second rounding, which billed calls by rounding to the second rather than the minute.
These "emotional hooks," as Thomas Kelly, vice president of marketing, called them, went against standard practice but appealed to angry consumers who felt they were paying for more than they were using. Other wireless companies soon followed Nextel's lead.
Competitors still tend to follow Nextel into new territory attempting to go after Nextel customers, who are among the most loyal in the industry.
"An average Nextel subscriber is generating about $71 per month and stays with the company for approximately four years," Hines said.
Compare that with an industry average of about $50 a month for two or three years. And although the company is not yet profitable, projections for the year show better-than-ever cash flow and revenue.
"What I can't afford to happen is for management to say, `Hey things are great, why change?' " Akerson said. But, he admitted, "in my quiet moments, yeah, I think we've made tremendous progress."
DIAL R FOR REVENUE
After weathering some bumpy years, Nextel stock has risen 58 percent this year. Although it has yet to make a profit, its revenues have been escalating.
(This chart was not available)
SOURCE: Bloomberg News
CAPTION: Nextel this week introduced its Internet-ready phones, ahead of schedule. Microsoft recently invested $600 million in Nextel, with plans to offer a full range of Internet services through the phones by the end of the year.
CAPTION: Daniel Akerson, Nextel CEO
CAPTION: Tim Donahue, Nextel president: "We've done a hell of a job building this company."
CAPTION: CRAIG McCAW