More than two years after offering iDEN technology to other manufacturers willing to license it, Motorola Inc. still hasn’t found any takers, despite the growing success of iDEN-user Nextel Communications Inc.
“There’s a lot of interest in the technology,” insisted David Kurt, manager of public relations for Motorola’s Land Mobile Products Sector. “People are trying to determine where to make their investments. What we have going for us is that no one else is doing this, and customers clearly favor the integrated services.”
Motorola announced in April 1995 its intention to license the essential intellectual property rights for infrastructure and subscriber interfaces for integrated Digital Enhanced Network technology, changing the name from MIRS, (Motorola Integrated Radio System) to reflect the nonproprietary nature of the technology and to disassociate the technology with MIRS negative perception. The technology integrates a digital phone, alphanumeric pager and two-way radio in one handset.
Motorola noted at that time that licensing the technology would create a more competitive environment, making it more attractive for network operators to commit to iDEN systems, which could lead to longer-term sales opportunities.
So far, in the United States, iDEN adopters have been few. Enhanced specialized mobile radio carrier Nextel, which is becoming a competitive threat to cellular and personal communications services carriers, has deployed the technology in hundreds of cities with plans to provide nationwide, roam-free digital coverage to mobile work forces. Southern Communications Services Inc. uses iDEN for internal work groups and external business users in three states. Southern is a subsidiary of The Southern Co., an electrical utility in the Southeastern United States.
The technology has made inroads in Canada (where Clearnet Communications Inc. launched service last year), Argentina, Brazil, China, Colombia, Israel, Japan, Korea, Philippines and Singapore. Nextel International Inc., a wholly owned subsidiary of Nextel, has wireless operations and investments in seven of those countries.
Nextel and iDEN technology are heralded by many analysts. Prudential Securities Inc. has noted that Nextel may enjoy the same demand pull as other work-group applications like the fax machine, e-mail and the Internet. The proliferation of new devices like Nextel’s new Galaxy phone and the development of intranet applications across a range of commercial segments may raise Nextel’s intrinsic value above current levels, said Prudential.
Morgan Stanley, Dean Witter Discover & Co., believes Nextel’s offering takes away from both the mobile phone market and the SMR dispatch market because it is ideally suited for high-end cellular users who are frequent roamers, the blue-collar service industry, national accounts and work forces that operate in a team-oriented environment. It believes Nextel represents an exceptional wireless opportunity.
Over the years, Nextel has gobbled up the big players in the SMR industry, leaving smaller companies to scoop up the dispatch customer who wants traditional analog dispatch service and doesn’t want to pay more for Nextel’s digital service. Geotek Communications Inc. is deploying its own digital ESMR service based on Frequency Hopping Multiple Access technology.
Last year’s 900 MHz SMR auctions reportedly resulted in one iDEN customer, Motorola’s own subsidiary, Motorola SMR Inc. This month’s upcoming 800 MHz auctions, if allowed to proceed, could result in more iDEN network operators. International adoption of the technology is quickly growing.
Michael Elling, senior telecom analyst with New York-based Prudential, believes other companies will manufacture iDEN product, just like they have licensed FLEX paging technology and Code Division Multiple Access technology.
“People didn’t move until it was too late,” Elling said of FLEX and CDMA adoption. “Now they are coming into the market too late. The success of Nextel is still doubted in the marketplace. Motorola and Nextel know it’s a home run, but you really have to hit people over the head … Equipment providers are so concerned about protocol issues and controlling things.”
Nextel may be doubted in the marketplace because iDEN technology suffered system performance problems in early 1996. It delayed its deployment of the service and marketing efforts until the problems were resolved. Nextel and Motorola have worked closely together to continue to improve and modify the technology.
Nextel isn’t likely to be hurt by the lack of licensees because its target market is more controlled than the general mobile phone market, and Motorola owns roughly 14 percent of the carrier. Thus, Motorola has a vested interest in providing equipment at a reasonable price.
“Motorola is providing aggressive pricing. I’d be worried if they didn’t own Nextel,” said Collette Fleming, analyst with Morgan Stanley.
Morgan Stanley said Motorola’s ability to provide the iDEN infrastructure, produce and deliver subscriber handset equipment and meet Nextel’s business buildout and marketing timetable is essential to the commercial success of Nextel and to the establishment and acceptance of the Nextel brand name.
Motorola said it has shipped more than 1 million handsets worldwide and has been able to increase the demand for handsets by expanding its factory capacity. Motorola recently introduced its third-generation iDEN handset, offering an expanded feature set with customizable options in a smaller and lighter handset that may appeal to white collar workers.
“We already have very competitive end-user pricing because we’re able to leverage our GSM-based technology,” said Kurt. “We are increasing our commonality of GSM part usage as we go forward. We don’t have to do something drastic in manufacturing.”
Full-fledged competition in the iDEN market, however, will result in Motorola selling its stake in Nextel, predicted Elling. Motorola has indicated in the past that it plans to reduce its ownership in the carrier.
“The question is: how will investors react to Motorola trying to sell its stake? In the long run, [the market is] better off having multiple equipment vendors,” he said.
