NII Holdings Inc., formerly Nextel International, has found success in Mexico and South America and recently passed the 4 million subscriber mark across four countries. The international company is based in Reston, Va., but offers service in Brazil, Argentina, Mexico and Peru, and recently announced that it is expanding service in Chile, where it launched service last year. Steven Shindler, chairman and CEO of the company, joined the former Nextel Communications Inc. in 1996 as CFO and held the position until 2000, when he was named CEO of the company which was founded as Nextel International Inc. Seven years later, his company is reporting substantial growth: full-year net additions for 2006 were 934,000-up 49% from the previous year. Full-year operating revenues were up 36% year-over-year.
The company continued its solid results in the first half of 2007, with its best-ever quarter of net additions in Q2 adding more than 331,000 customers.
Success with iDEN
The success of NII comes in sharp contrast to the company from which it descended. Sprint Nextel Corp. has struggled to keep up iDEN network quality as it goes through spectrum re-banding and in recent quarters has seen mass defections in the high-value business customers that the Nextel business regularly delivered.
“I think it’s been a situation where there have been a lot of variables that they’ve had to try to manage-with very different networks, and trying to figure out strategy and define where they want to go and grow, and what emphasis to put on each,” Shindler said of the U.S. operator. The merger requirements concerning spectrum affected the Nextel part of the business in particular, he noted.
Shindler emphasized the fundamental differences in the markets which NII serves and the U.S., which have shaped his company’s success.
“The key differences are the nature of the way competition works,” he said. “There are fewer competitors, and the competitors that we go up against are . really going into the prepaid calling card and the consumer space. Whereas what we have concentrated on . is exclusively a postpaid or contract platform in the business community, or with the very high-usage type community.
“Another key difference versus the U.S. market is the overall level of penetration, and the fact Latin America now is still below 50% penetration and started off this year closer to 40%,” Shindler said. “It’ll probably double in size in a three-year period of time, so we have the benefit of a great level of growth going on around us.”
Biz focus good for metrics
NII’s focus on providing businesses with wireless, Shindler said, has resulted in average revenue per user that is higher and churn that is lower than those of its competitors. NII’s ARPU in Mexico, its largest country of operations with nearly half of NII’s customers, was $74 at the end of the second quarter. In NII’s other countries, ARPUs range from $35 per month in Peru to $53 per month in Brazil. Across all of its markets, however, the company maintains a churn rate of less than 2%.
Also, spectrum prices in NII’s countries of operations mean that NII is able to get the airwaves it needs for “a fraction of the cost” that U.S. operators typically pay, leaving NII with a lower starting point for its underlying costs, Shindler said.
Last year was a big year for the company in terms of acquisitions, including the purchase of a Mexican competitor for $200 million that gained the company a nationwide 50 megahertz spectrum license in the 3.4 GHz band. NII’s Peruvian operation made an acquisition with similar scope, ending up with 50 megahertz of spectrum in the 3.4 GHz band covering the country’s major provinces.
Not that the company hasn’t had its speed bumps. Shindler described the company’s early years as enduring “varying periods of growth, and then decline and growth” and that the company went through a reorganization in 2002 where it “deliberately scaled back on the growth to preserve some cash. Once we’ve ramped since then, the growth has been pretty consistent.”
Securing supply
In September of last year, NII Holdings signed a new, five-year extension of its supply agreement with Motorola Inc. for handsets and network equipment. Sprint Nextel has talked about its plans to eventually turn down its iDEN network, which could in theory choke off Motorola’s interest and investment in iDEN.
Ironically, Shindler said, the strength of iDEN in the U.S. used to leave NII with little influence, because the successful handsets “were moving more up market [and] sell better in [the U.S.] market but not in the markets we serve.” He said that as Sprint Nextel has shifted its focus from iDEN, Motorola has “redirected a lot of their resources our way, to design specifically the kinds of handsets that we think are more effective for our own markets.” He said that handsets which have fewer features and lower price points tend to sell better in Latin America.
Expansion plans
NII also has big network expansion plans in the works. In the past two years, it has extended its network to cover an additional 60 million potential customers, and plans capital expenses this year of about $650 million. During the second quarter alone, the carrier turned on service in 20 new cities. Shindler credited the network expansion in part for boosting the company’s ARPU, due to increased usage as customers venture into newly covered areas.
The company also wants to expand its rudimentary data offerings. Shindler said that data revenues are “nowhere near what it eventually grew to in the U.S., or what we think it can become. We’re pushing those levers now.”
Meanwhile, the company continues to work with Sprint Nextel on issues relevant to the iDEN technology and some shared spectrum.
“We do have a vested interest in continuing to work together on the roadmap and the development of iDEN handsets, and sharing spectrum along the U.S./Mexico border to make sure that we can each manage growth,” Shindler said.
