Nextel deal – has Microsoft bought into a ghetto?
Few users, large debts, specialist technology - this cannot be The Big One
The more you look into yesterday's Microsoft-Nextel deal, the more difficult it is to see what Microsoft has bought with its $600 million - or even what Microsoft thought it was buying, because although the deal might have been intended as a play for the wireless data market, it could instead take Microsoft into a blind alley. The bare bones of the alliance are simple enough. US wireless phone outfit Nextel has over 3 million users across the USA, Microsoft's investment will be used for network expansion (Nextel is somewhat debt-heavy, and could use the cash), and Microsoft will set up a wireless Web portal for Nextel users. So far so simple - Nextel gets to offer wireless Web access, Microsoft gets some more users for MSN, and Nextel co-operates in the specification of Microsoft Web technology for low resource devices, and the design of the low-resource browser (which we seem to recall Microsoft might wind up buying from Spyglass, anyway). The announcement comes just a month after Nextel announced a quarterly loss of $485 million for its first quarter, which it puts down mainly to capital expenditure of $424 million. Nextel expects 1999 sales to be $3 billion, up from $1.8 billion last year. At the end of last year, Nextel secured another billon dollars of financing, has about $10 billion of debt, and is rumoured to be looking for another $1.2 billion of financing through a bond offering. Motorola is a primary investor in Nextel, and as we shall see, this is significant. But it all starts to come apart if you try to picture it as a major play for the broader market, rather than just a smallish contra deal between the two companies. Nextel does not have the mass to be termed a pivotal player in the market (Europe is littered with larger outfits), and it's also one of those overly-specialist wireless outfits you tend to worry about - yes folks, it's a Motorola shop. Nextel's data services are dependent on Motorola handsets, and Motorola iDEN technology. The word ghetto springs to mind, even before you check the coverage maps. iDEN covers continental USA and looks plausible in South and Central America, but it's nowhere in Europe, stamping ground of the Vikings who've been beating hell out of Motorola in the digital handset market. Motorola had hopes for China, but recent misguided missiles mean that European and US companies will be facing some considerable consumer resistance in the People's Republic. Effectively Microsoft has bought itself a small stake in a relatively minor wireless player whose operation is based on niche technology. Motorola itself has found it needs to cut deals with its rivals over standards (hello, Symbian), and it's perfectly possible that Nextel will have to use some of that Microsoft money to broaden its base out of a niche that Motorola will be de-emphasising. Microsoft meanwhile is going to have to adopt a broader policy before that. The company says that its Nextel deal is unrelated to its Qualcomm joint venture, WirelessKnowledge (correct), but the deal also coincided with a more general announcement that Microsoft would develop a wireless Web portal via MSN. According to Microsoft, the wireless MSN portal, which will open for business later in the year, "is based on industry standards." This kind of Microsoftspeak is quite often not exactly true. The portal is also described as "a component of the end-to-end wireless solution from Microsoft," which means that this one is related to Wireless Knowledge, which intends to deliver services with Microsoft BackOffice apps squatting at the back of them. If you want some more confusion, Microsoft says Nextel "will be the first provider to work with Microsoft to deliver the benefits of these capabilities [sheesh, who writes this crud?] to its customer base." Which means it is something to do with WirelessKnowledge after all. But to succeed in wireless data, Microsoft is clearly going to have to cut deals with other wireless providers, and at $600 million for 3 million users, this could get to be expensive. It's also going to have to cut standards deals with other companies too. It's not entirely obvious that Microsoft has figured this out yet, and although it joined the WAP Forum quite recently, sooner or later it's probably going to have to talk to the Vikings. It can't go round them, and it surely can't go over them either. But they're going to go on about open industry standards. Tricky. ®