Nextel Communications, owned by U.S.-based holding company NII Holdings, could lose its competitive advantage across Latin America due to delays of its 3G network deployment.
Financial analysts have noted that the carrier’s 3G plans could result in the carrier becoming lost in a sea of rival 3G operators that have already launched commercial services, as well as the loss of its unique push-to-talk service that continues to suffer from a lack of compelling devices geared toward an increasingly smartphone-savvy public.
“As market moves from voice to data, people want to enjoy their iPhones and they are not interested in PTT,” Macquarie Capital’s analyst Kevin Smithen told RCR Wireless News. He added that moving to 3G would force Nextel to upgrade and subsidize their subscribers’ devices. “So I ask if Nextel still has a competitive advantage, because they are going to be just the same as everybody else,” Smithen added.
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Nextel currently uses iDEN technology developed by Motorola to provide its mobile services across its 800 MHz spectrum holdings. That technology is at the heart of its PTT service that has been a staple of the service industry and a unique offering across the mobile space.
Last February, the company said it expected to launch 3G services in Chile by mid-year; in Mexico late in the third quarter; and by the end of the year in Brazil. During a conference call for its financial results, NII Holdings’ CEO Steve Dussek cited problems in construction sites and delays in equipment delivery for the deployment holdup.
Nextel could also be considering selling off its tower assets, a move that could raise money to help fund the 3G deployments. “It makes more sense and creates more value to stakeholders,” noted Smithen.
Macquarie Capital said the towers could be worth approximately $2.1 billion or $300,000 per site in the current tower M&A environment. “Based on our discussions with tower operators, we estimate that [NII Holdings] will have to negotiate new tower amendments on as many as 15,000 sites in Brazil, Mexico and Chile. This could cost the company $200 per month per site or as much $36 million (2.3% of 2011 [earnings before interest, taxes, depreciation and amortization]) in annual incremental lease expenses,” the firm noted in a recent report.
Competitiveness
Smithen said that comparisons to former parent company Sprint Nextel are inevitable. In its analysis, Macquarie Capital noted Sprint Nextel’s iDEN postpaid customer base has fallen from 16 million subscribers prior to Sprint acquiring Nextel, to approximately 4 million customers. Sprint Nextel noted last week at a press event that is was currently serving about 6 million total customers on its iDEN network across both prepaid and postpaid subscribers. PTT functionality was a differentiator in the past that attracted government agencies, construction workers, corporations and even high-end residential customers willing to pay a premium over commoditized voice services, though the question now is if subscribers want to keep their iDEN service instead of moving to advanced 3G offerings.
Brazil’s largest operator, Vivo, has unveiled a PTT service that competes against Nextel’s offering with a larger network. Although a significant portion of Nextel’s customers remain due to the PTT offering, the carrier’s focus in Brazil and Mexico should be on what consumers want, which is applications, videos, social networking, mobile commerce, and less on the PTT functionality.
Smithen explained that Brazil and Mexico are certainly Nextel’s main focus, and together represent almost 90% of the company’s operations. That’s why it is so important to launch 3G in those markets.
Nextel trails four larger rivals in the Brazilian market and lacks the investment power of América Móvil in Mexico. This could increase its network deploymentdifficulty. “Nextel is smaller, and it is trying to rollout 3G in all markets at the same time, but with the same resources as Vivo, Claro, Oi or TIM, and they can invest millions of dollars,” explained Smithen.
In Peru, Nextel has already launched its 3G PTT service using its new W-CDMA network. Consolidated capital expenditures are expected to reach approximately $1.7 billion in 2012, which includes investments related to the deployment of W-CDMA networks and supporting systems, and the enhancement of the capacity of the company’s iDEN networks to support customer growth.
Another topic is Nextel’s decision to not move to a “4G” solution in Brazil. Government regulator Anatel (just released the bidding documents and the auction is expected to take place in early June). “They have already started 3G deployment, but they are so late with it that I think they have to move forward with this W-CDMA 3G solutions just to be competitive with their customer before to jump ahead,” noted Smithen.
Regarding this scenario, when asked if Nextel could bankrupt, Smithen advised that he does not think so. “They are increasing their subscribers base and they have a good balance sheet,” Smithen explained. “They will be around for long time. The question is do they have the scale, brand and financial resources to play 3G in Mexico and Brazil or is it a game for the carriers already on the road?”
