NEXTEL Communications Inc.
2004
Dustin Nadeau, Donatas Sumyla
and Jaime Rodriguez
Bus 411, March 2006
March 2006; BUS 411
Dustin, Donny and Jaime
Overview
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Existing Condition
– Nextel overview
– Industry overview
History, Key Facts, Goals and
Objectives
Nextel and Proposed Vision and
Mission
External opportunities and threats
– CPM
– EFE
Financial Ratios
Internal strengths and
weaknesses
– IFE
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Analysis
– SWOT Matrix
– SPACE
– BCG
– IE matrix
– Grand Strategy Matrix
– QSPM
Possible strategies
Recommendations
– Strategic implementation and
desired results
– Show Cost
– Annual objectives (goal) and
polices
Evaluation Procedure
Current Update
Dustin, Donny and Jaime
Nextel Overview
• Nextel Communication, Inc. provides fully integrated,
wireless digital communications services using the
Nextel brand name in mid-sized and rural markets
throughout the United States. The Company offers four
distinct wireless services in a single wireless handset.
These services include International and Nationwide
Direct Connect, digital cellular voice, short messaging
and cellular Internet access, which provides users with
wireless access to the Internet and an organization's
internal databases, as well as other applications,
including e-mail
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Nextel Overview
• Partnership with many different companies including IBM, EDS, Sun
Microsystems, UNISYS, SAIC, and JPS Communications.
• Corporate infrastructure includes:
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Nextel Partners
NII Holdings
Motorola (the major cellular phone manufacturer for Nextel)
Nextel Worldwide™
• Affiliated through entertainment with NASCAR, NFL, NHL, and the
PGA Tour providing up to the minute updates on your favorite teams,
racers, or golfers.
• Nextel Communications, Inc. helps people get things done with the
industry’s most differentiated products, services and solutions.
Together with Nextel Partners, Inc., Nextel serves 297 of the top 300
markets, where approximately 262 million people live or work.
• NASDAQ National Market under the symbol NXTL.
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History
• In 1987 Morgan O'Brien founded a company called Fleet Net.
Renamed Nextel in 1993, the company rapidly established itself as
a nationwide force in the world of wireless communications.
• In less than year's time, Nextel merged with Dial Call and
OneComm, acquired all of Motorola's SMR licenses in the U.S
• By mid-1995, Nextel was on point to serve all of the nation's top 50
markets.
• In September 1996, the company introduced Motorola's
breakthrough iDEN technology. This marked the first combination of
enhanced digital cellular, two-way radio and text/numeric paging in
one phone which became the famed Nextel phone.
• By the year 2000, the company had connected to countries around
the world and introduced its “always connected” wireless data
solution. Soon to follow were its signature Nationwide Direct
Connect walkie-talkie service, IP broadband access, and a steady
stream of feature rich Internet ready phones and smart devices.
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Stock Price Performance
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Industry Overview
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Cell phones are becoming primary communication devices (~200M
domestic users)
Flooded with cellular phone companies in the last 10 years
Intense competition (mergers)
Consumers are changing from land lines to cellular phones for reducing
long-distance charges and convenience
Over 70% of homes in America currently have access to the Internet and
use it on a regular basis, and it is estimated by around 2010 around 60%
will have broadband access
Cellular phones have transformed from large analog devices to small and
sleek instruments of communication that are digital, can be used as a
walkie-talkie, a text messaging device, a video conference device, a picture
taking device, and even a music device now.
Industry downfall in 2002
Most of the U.S. is cellular phone integrated
Lack of coverage in remote areas
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Compare to Industry
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Key facts
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About 12.9M subscribers in the United States alone
2003 revenue $10,820M
1-yr. growth revenue rate 24%
17,000 employees (growth rate 14%)
Introduced walkie-talkie technology and GPS
capabilities on a cellular phone
• First company to offer live streaming video and updates
on sporting events, such as NASCAR (primary sponsor)
• Does not use towers as means for phone signal but uses
satellites
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Nextel Domestic Presence
Data from Nextel Partner Annual Report 2003:
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Goals & Objectives
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Nextel will continue to push its walkie-talkie service as its chief
competitive advantage; it will have to increase its coverage area and
make pricing competitive. It also expects to leverage its relationship
with NASCAR to boost its market share and brand awareness.
For Nextel to become the dominant player in the wireless
communications industry, it will have to focus on retaining customers
while encouraging people to switch over.
Nextel is also looking to expand to rural areas of the United
States where there is less competition.
Nextel is repurchasing debt to reduce interest expense and
risk, and distribution channels are also being expanded so more
people can easily sign onto Nextel service.
Customer-centered operations will continue to be a focus so
that high-value customers can be retained and customer churn rate
will lower.
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Vision
• Enhancing the diversity of Nextel’s
workforce and promoting and inclusive
work environment to better serve our
diverse employees, customers, suppliers,
and business partners.
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Mission
• Mission: Our Inclusion Advisory Council (IAC) and senior
leadership team will achieve our vision by incorporating
inclusion into all that we do by: recruiting and retaining a
talented, diverse employee base; recognizing and
appreciating all employee’s perspectives and talents;
fostering an environment that enables all employees
reach their highest potential; building diversity
awareness throughout the organization; promoting
supplier diversity. Moreover, we intend to cultivate and
increase domestic business and shareholder value by
developing a world class supplier diversity program that
aggressively engage us diverse value added suppliers,
creating a sustainable competitive advantage.
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Proposed Vision
At Nextel our vision is to increase market
share in the wireless communication
market and to build a trifold commitment to
people, service and values; by providing
innovating solutions through various
wireless technologies and maximizing
costumers satisfaction we want to
continue to fuel our growth and generate
stronger financial results.
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Proposed Mission
We value our customers and treat them with
respect providing friendly and effective
service which includes the best quality
wireless and Direct Connect™ services
available in all US metropolitan and rural
areas, and also in the Latin and European
markets. We believe that our employees
are a valuable asset and we will achieve
win-win results through the power of
teamwork.
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Key Ratios (1of 2)
• Average monthly revenue
per handset/unit in service, or
ARPU, is an industry metric
that measures service
revenues per period divided by
the weighted average number
of handsets in commercial
service during that period,
excluding the impact of Boost
Mobile.
• ARPU can be calculated and
reconciled to our consolidated
statements of operations as
follows:
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Key Ratio (2 of 2)
• Lifetime Revenue per
Subscriber, or LRS, is
an industry metric
calculated by dividing
ARPU by the customer
churn rate.
• LRS is an indicator of the
expected lifetime revenue
of our subscribers,
assuming that churn and
ARPU remain constant as
indicated.
• LRS is calculated as
follows:
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Finance Performance
Data from Nextel Annual report 2003:
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Compare to Telecommunication Sector
Data from Annual Report 2003:
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SWOT Analysis
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External opportunities and threats
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OPPORTUNITIES
Potential global expansion,
specially into Latino America
and Europe
Potential gain of customers
and market share in rural
areas
Foreign currencies gaining
strength compared to
American dollar
Prepaid plan to convenience
younger market
Increase in use of wireless
service
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THREATS
Potential market penetration in
the walkie-talkie service
market
Ease of changing cell phone
carriers
Other companies merging to
penetrate market even further
If suit is lost against Verizon
they could lose walkie-talkie
rights
Consumers are demanding
lower prices, therefore the
ARPU will continue to shrink
Weak consumer spending
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EFE Matrix
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Competitive Profile Matrix (CPM)
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Internal strengths and weaknesses
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STRENGTHS
Nextel Direct Connect: major
competitive advantage overall the
competitors
Market Development, including
NASCAR 10-year $700-750 M
agreement.
Use of Satellites
Large number of service innovations
(i.e. Push to talk™ GPS, streaming
video)
Nextel’s Churn is the lowest in the
market
Large number of affiliations and
partnerships (specially important with
Motorola)
Possession of high value costumers:
highest ARPU in the market
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WEAKNESSES
Low Market share
Financial instability
ARPU is going down in the last 3 years
Low service provided in rural areas
High cost of some of their plans
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IFE Matrix
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Key Ratios
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Space Matrix
* Y axis: - Financial Strength: + 1
- Environmental Stability: - 2
* X axis: - Competitive Advantage: - 4
- Industry Strength + 5
=> Y coordinate: - 1 STRATEGY: COMPETITIVE
=> X coordinate: + 1
Space Matrix
6.00
Conservative
Aggressive
5.00
4.00
3.00
2.00
1.00
0.00
- 6.00
- 5.00
- 4.00
- 3.00
- 2.00
- 1.00
0.00
- 1.00
1.00
2.00
3.00
4.00
5.00
- 2.00
- 3.00
Defensive
- 4.00
- 5.00
- 6.00
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Competitive
6.00
BCG Matrix
20
STARS
QUESTION MARKS
15
10
5
0.32, 3.55
0
1
0.8
0.6
0.4
0.2
0
-5
-10
CASH COWS
-15
-20
Relative Market Share (X)
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DOGS
Industry Sales Growth Rate (%)
(Y)
Nextel Communications Inc.
BCG MATRIX
IE Matrix
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II
III
IV
VI
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VII
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VIII
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IX
The Grand Strategy Matrix
Nextel Communication
Potential Strategies:
1. Market Development
2. Market Penetration
3. Product Development
4. Horizontal Integration
5. Forward Integration
6. Concentric Diversification
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Possible Strategies
Alternatives
Advantages
Introduce prepaid plans focusing Entering different
on younger population market
market
Disadvantages
Strong competition
Acquire smaller wireless
providers to grow domestic rural
markets
Increased coverage of
Potential profit margins
service offered specially limited
in rural areas
Increase the expansion in the
Latin market
International expansion
in a developing market
Uncertain success
guarantee
Merger with a big company in
the sector
Increased market share
and number of
customers
Regulatory issues
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QSPM
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QSPM
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Decisions
• Primary: Introduce prepaid plans focusing
on younger population market (Market
penetration)
• Alternative:
– Merger with a big company in the sector
– Expansion in the Latin market
– Acquire smaller wireless providers
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Showing Cost
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Implementation
• Objectives
– Increase income by 15% in the first year and 30% in
the overall period of 3 years
• Keep the net profit margin above the industry average (10%)
• Increase total domestic revenue by 30% due to increase in
number of domestic subscribers
• Avoid a decrease of more than 5% of ARPU
– Decrease long–term debt
• Use increased income to pay down long-term debt
• Reduce long-term debt by reducing interest payments and
increasing equity
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Goals & Policies
• Decrease operating costs by 5%
• Increase production efficiency by 30% this
year
• Establish customer satisfaction rate of
97%
• Increase marketing expenditure by 15% to
be sure the whole young market is
targeted
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Evaluations
• Financial reports annually and quarterly if
necessary
• Customer feedback program
• Establish top level management meetings
to assure the annual and quarterly goals
are achieved
• Determine corrective actions after the first
year if annual objectives weren’t
accomplished
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Current Update
• At the end of year 2004 a merge between
Nextel and Sprint was announced
• Finally, operations were launched in the
middle of 2005
• For the fiscal year ended 31 December
2005, Sprint Nextel Corporation's
revenues increased 26% to $34.68B
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