The specialized mobile radio industry is quickly becoming a fractured market divided between the traditional small SMR carriers, which are focused on providing dispatch services to customers at reasonable prices, and big players, which are marketing services as a high-end alternative to personal communications services.
The merging of SMR and PCS services has been spearheaded by the big player, Nextel Communications Inc., which has purchased a good share of the national spectrum allocated to SMR carriers and has bought out many smaller carriers to build out its nationwide network of services offering PCS-like services in combination with two-way radio features commonly marketed by small SMR carriers. In fact, the merging has gone so well, many analysts include Nextel in the discussions of the PCS market.
“You can’t compare the SMR market as an independent market anymore,” said Elliot Hamilton, senior analyst at the Strategis Group. “They are part of the PCS market nowadays. Their services are definitely not marketed toward the dispatch market exclusively any more.”
In spite of Nextel Communications’ dominance, two carriers are attempting to build their businesses in the SMR market place: Nextel Partners Inc., an affiliate of Nextel Communications, and Southern Linc, the wireless communications service offering from international energy company Southern Co.
Even though the similarities between the two companies are limited to their use of the 800 MHz spectrum and Motorola Inc.’s iDEN technology, both have been able to offer services that have allowed them to grow in the shadow of Nextel Communications.
Nextel Partners initially entered into its affiliation, or what it calls a partnership, with Nextel in January 1999, exchanging Nextel’s spectrum in certain small and mid-sized markets for an equity stake in Partners. Nextel Communications is currently Nextel Partners’ largest shareholder, owning 32 percent of the company.
Nextel Partners’ plan was to ride the popularity of Nextel Communications’ nationwide service offerings into their small and mid-sized markets, helping both companies expand their customer base.
Currently Partners, which went public earlier this year, is licensed to operate in 15 of the top 100 metropolitan statistical areas in the United States ranked by population and 55 of the top 200 MSAs. In addition, the company holds the rights to use broadband wireless frequencies in 46 markets covering more than 40 million potential customers. At the end of the third quarter, Partners had 172,000 subscribers in its markets, with plans to push past the 225,000-subscriber barrier by the end of the year.
“We put together a business plan where we draw spectrum from Nextel to fill out our network,” said John Chapple, president, chief executive officer and chairman of Nextel Partners. “The partnership allows us to maximize the value for both companies. It maximizes the use of a common brand name and service. That is the spirit of the agreement. At this time we still have spectrum that we have not drawn upon from Nextel.”
This close relationship with Nextel is not lost on many customers and analysts who see little need to differentiate between the two.
“There really is no difference between the two,” said Hamilton. “Nextel Partners is like a holding company for Nextel Communications allowing them to build out their network faster.”
Chapple is quick to counter that even with its close working relationship with Nextel, they are two separately run companies. Chapple noted that in the event of a Nextel sale, Partners has an 18-month window to decide if it wants to be part of the new company. In return, Nextel has a clause allowing it to purchase Partners in full for the going market rate during the next eight years. Chapple said these agreements are designed to protect its shareholders in any circumstance.
Because Nextel is one of the few remaining wireless carriers with spectrum holdings across the country, this sale clause is important to note. AT&T Wireless Services Inc. has been rumored to be interested in acquiring Nextel, and while not confirming the possibility of a takeover by AT&T, Bob Ratliffe, a spokesman for Partners, noted that the iDEN technology used by Nextel is based on TDMA technology that is currently used by AT&T.
“We are an opportunity for a company to become a bigger player in the U.S. market,” said Ratliffe.
As far as people in the wireless industry comparing Nextel’s business plan to those of PCS carriers, Chapple agrees, noting that he did not think of Partners as an SMR operator, but as a nationwide carrier similar to PCS operators.
Southern Linc (Linc stands for long-range integrated network communications) holds a very different place in the SMR market. By positioning itself as a provider of business-to-business wireless services specifically targeted at dispatch-oriented companies that can take advantage of its Instant Linc two-way radio service, said it continues as a true SMR operator.
Backed by Atlanta-based Southern Co., the largest producer of electricity in the United States, Southern Linc’s coverage area includes 127,000 square miles and 200,000 customers in the Southeast, including metro and rural areas in Alabama, Georgia, southeastern Mississippi and northwest Florida.
“It’s definitely more of a regional player in the SMR marketplace,” Hamilton noted.
Southern Linc acknowledges its position as a regional player but noted its focus on the business market in its coverage areas provides advantages to its customers.
“Our competitive advantage is that we have great coverage in our markets,” said Gretchen Crawford, spokeswoman for Southern Linc. “You can go from Tennessee to Mississippi and not find many holes in our coverage area.”
That coverage also allows Southern Linc to offer wireless phone service and numeric and text paging to its customers, though Crawford acknowledged the company wants to focus on its business offerings for now instead of going after the traditional PCS customer.
The temptation to lure PCS customers will certainly continue to fracture the SMR industry. For those companies, like Southern Linc, that want to continue with their dispatch roots, the lack of available spectrum will limit their ability to grow. Other providers, like Partners, have chosen the PCS model with plans to integrate the advantages of SMR service into PCS offerings. Either way, the SMR industry of the future will have little resemblance to the industry of today.
