Nextel Communications

1
Nextel Communications

• Analyst
• Damian Mahaffey

2
Company Overview

• 5th largest telecom company in the US and offers
  fully integrated digital wireless communication
  services
• 12.9 million subscribers
• Headquartered in Virginia
• Employs 17,000
• Best known for its Direct Connect feature, which
  allows customers to instantly communicate as they
  would using a walkie-talkie without a traditional
  dialup

3
History

• Nextel Communications originated from Fleet Call
  (founded in 1987). Fleet Call changed its name
  to Nextel Communications in 1992.
• In 1994 Nextel agreed to buy all of Motorolas
  SMR radio licenses in the US, providing Nextel
  with significant spectrum rights in the market
  place.
• In 2000 the company introduced Nextel Worldwide,
  one of the largest all-digital wireless coverage
  in the US and in more than 65 countries.
• In 2001 Nextel launched its first mobile internet
  handsets

4
Recent News

• In February 2004, Nextel extended its wireless
  business solutions to include a focused approach
  for the healthcare industry. The company plans
  to provide wireless voice and data solutions
  specifically tailored to the communication
  requirements in the physician, hospital and home
  healthcare segments.
• In February 2004, Nextel announced it would test
  a wireless broadband service in the
  Raleigh-Durham, NC, market using Flarion
  Technologies FLASH-OFDM technology. The trial
  will provide wireless broadband access on laptop
  and desktop computers, pocket PCs, and similar
  devices.
• Two or more executives, board directors or major
  shareholders - including one high-level executive
  - sold a large number of shares recently

5
Major Products and Services

• Mobile phones
• Nextel Direct Connect
• Wireless web service
• Mobile office solutions
• Nextel mobile messaging
• Ring tones, games and applications

6
Nextel Direct Connect

• Push to Talk walkie-talkie service
• Easy to use
• Discourages rambling interruptions
• Popular among construction workers, delivery
  drivers, others who use two-way radios
• Available nationwide
• However, Verizon is attempting to break into this
  market

7
Industry Overview

• In order to be competitive in the
  Telecommunication market, participants need to
  offer complete service packages, including long
  distance and local voice, wireless, video, data,
  and broadband.
• Increased competition is evident due to signs of
  wireless carriers that are boosting monthly
  service plan minutes in hopes to renew existing
  customer contracts or acquire new subscribers.
• Double digit revenue growth is expected for the
  industry in the next 12 months, but slower growth
  than in the past year due to fewer net subscriber
  additions offset in part by higher average
  revenue per user from new data services.

8
Strengths

• Strong financial performance
• In a tough year for the US telecom market, Nextel
  posted impressive financial results. Increasing
  revenues by 24, increasing operating income 64,
  and increasing net income 10.8 in 2003.
• Subscriber base
• Rapidly expanding its customer base, targeting
  the business sector. In 2003 Nextel had 12.9M
  subscribers, an increase of 2.3M from 2002.
• Strong positions
• Nextel serves 293 of the top 300 US markets

9
Weaknesses

• Expensive digital handsets
• The higher cost of Nextels handsets requires it
  to absorb part of the cost of offering handsets
  to new and existing customers.
• Limited roaming coverage
• Nextel is the only national US wireless service
  provider utilizing iDEN technology.
• Agreements with Motorola
• Motorola provides almost all the handsets
  throughout Nextels markets. Motorola sets the
  prices that Nextel must pay to purchase and
  license the iDEN equipment.

10
Opportunities

• Cutting-edge technology
• Planning a nation-wide roll out of its direct
  connect service, which will significantly bring
  down cost of an average cellular call, thus
  attracting more customers.
• Youth Segment
• Targeting youth with a pay-as-you-go wireless
  service. Offer a range of games and ring tones
  for the young generation.
• New distributing channels
• In 2003 Nextel continued to expand distribution
  through web sales, telesales and sales through
  Nextel stores.

11
Threats

• Increased competition
• Some of the competitors have larger coverage
  areas, larger subscriber bases, and better name
  recognition than Nextel. Major competitors
  include Verizon Wireless, Cingular Wireless
  Sprint PCS
• Government regulations
• Several states and localities in the US have
  banned or are considering restricting the use of
  wireless phones while driving.
• Low switching cost
• Customers are able to switch easily between
  different service providers, while keeping the
  same phone number.

12
1 Year Performance Chart
13
Statistics

• Purchase Price 13.78
• Current Price 27.45
• Initial Cost 620.10
• Current Market Value 1,235.25
• Money Gained 615.15
• Shares Owned 45

14
Valuation

• Current Price 27.45
• SP Fair Value 13.70
• SP 12 Month Target Price 23.00
• ValuePro IV 19.48
• Intrinsic Value 19.15
• Growth rate 12

15
Recommendation

• Sell
• Overvalued at 27.45
• Underperforms competitors in most areas
• Does not meet our criteria