Cellular firms, AT&T challenged by Nextel N.J. upstart builds network that could serve 180 million

November 10, 1993|By New York Times News Service

The revolution in wireless communications took a new turn yesterday as an upstart company acquired the capstone for a nationwide network that could give cellular phone companies and giants like AT&T a run for their money.

Capping a steady and often stealthy six-year buying binge, Nextel Communications Inc., of Rutherford, N.J., announced it would buy a huge collection of mobile-radio licenses from Motorola Inc. for $1.8 billion in stock.

When combined with licenses that Nextel had already acquired, the company has the potential -- theoretically at least -- to serve 180 million people across 21 states.

That is roughly three times the number of people covered by McCaw Cellular Communications, the nation's biggest cellular operator, which American Telephone & Telegraph Co. is buying for $12.6 billion.

"We admit it, we are the skunk at the wireless picnic," said Nextel Chairman Morgan E. O'Brien. "No one invited us."

Using digital technology to update old-fashioned taxicab radio services, Nextel officials say they hope to offer a sophisticated rival to cellular networks within three years. Besides carrying ordinary voice conversations, as cellular does, the Nextel networks would offer built-in paging and data communications -- features not available with most current cellular service.

The company has already begun operating such a network in Los Angeles and expects to cover almost all of California by spring. In the metropolitan New York area, Nextel's service is expected to be running by next summer.

Nextel officials also announced yesterday that Nippon Telegraph & Telephone, the Japanese telephone company, would invest $75 million in the company and would design a nationwide signal system to enable Nextel to link all its local systems into a single network within three years.

Despite Nextel's potential, made possible by a more-than-fourfold increase in the company's stock price in the last year, the challenges ahead are enormous. For one thing, the existing cellular industry has a huge head start, with roughly 12 million customers nationwide. Nextel would not be fully operational before 1996.

Moreover Nextel, despite having raised more than $1 billion in working capital during the past two years, will need a lot of additional financing. Brian D. McAuley, president of Nextel, estimated that Nextel's initial construction costs would total $1.2 billion.

Beyond that, the company will need hundreds of millions of dollars for marketing and operations. Industry analysts estimate that cellular companies incur marketing costs of $500 to sign up each customer, and some predict Nextel will have to spend $650 a customer because its equipment and service are not as familiar.

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