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New wireless rivalries take market toll

In the wake of anxieties over wireless subscriber growth, a battle for profitable business customers appears to be weighing on some companies' mobile phone revenues and stock performance.

In the wake of anxieties over wireless subscriber growth, a battle for profitable business customers appears to be taking its toll on some companies' mobile phone revenues and stock performance.

Meta Group says Nextel's complaints about "irrational" pricing by its competitors indicate the cut-throat competition for wireless business customers and the overall irrational nature of the industry.

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In the course of its quarterly earnings call Thursday, Nextel Communications--the mobile provider most closely associated with the business market--warned analysts that other competitors had begun pricing their services in an "irrational" manner. That could cut into Nextel's future growth, executives warned.

After the call, Nextel's stock fell more than 20 percent despite the company's better-than-expected financial figures. Sprint PCS fell 10 percent on associated worries.

Nextel, which has built its nationwide service largely on the business market, has the most to lose from any such trend. But what that company's executives are dubbing "irrational" is really a dogfight driven by the appearance on the scene of the new national companies Verizon Wireless and Cingular Wireless, analysts say.

That doesn't mean a slowdown across the industry. But it does mean that the few companies that have dominated the lucrative business market may lose some of their market share.

"Other cellular PCS carriers look at Nextel's customer base and drool," said Eliot Hamilton. "But that's the marketplace out there now. You can't have an average $70 customer out there and expect someone not to give them a price cut."

Market hypochondria?
For all the anxieties rippling through the telecommunications market, it's a fact that wireless subscriber figures are still growing by leaps and bounds. The industry signed up 13.9 million new subscribers in 1998, 16.8 million in 1999, and is on track to reach 22 million new customers by the end of this year, according to investment firm WR Hambrecht.

That pace probably isn't sustainable, according to some analysts, and some companies report that they're already seeing slowing growth. Sprint PCS and Nextel each downgraded their subscriber expectations last quarter shortly before reporting their earnings, setting off a new round of fears.

But the result is not the picture of an industry in trouble, analysts say. Instead, the appearance of viable national competitors to early national companies Nextel, Sprint PCS and AT&T Wireless have simply provided more places for wireless subscribers looking for that kind of company with which to do business. AT&T Wireless still posted better-than-expected growth this quarter, and the industry is expected to grow by about 22 percent next year, a strong figure by most standards.

That said, the new competition, and the need for each company to set itself apart in a skeptical financial marketplace, is intensifying rivalries.

The business market, in which carriers can net many high-volume callers with a single company contract, is catching much of the bulk of this new competition. Companies are working hard to get their revenue per subscriber up to show good financial numbers to Wall Street, and business callers tend to use their phones more often and at more expensive times of day than do ordinary consumers.

Nextel is particularly feeling the heat as companies market their "mobile to mobile" services more aggressively, in an attempt to compete with that carriers' walkie-talkie-like feature, analysts said.

Verizon, which as Bell Atlantic was one of the original companies to offer low rates for mobile phone calls to other mobile phones, says it hasn't specifically stepped up its marketing around this feature. But a representative said that the new national coverage provided by Bell Atlantic's wireless merger with Vodafone AirTouch has allowed it to present a stronger case to business customers.

A Cingular spokesman said that his company, created from the merger of BellSouth and SBC Communications wireless properties, hasn't begun to market as a combined entity yet. The new company has identified several business niches it believes haven't been adequately served and will market aggressively to them, according to spokesman Clay Owens.

These companies have to compete with Nextel on price, because they can't offer some of Nextel's unique technological features, analysts say. And while business pricing is often more complicated and customer-specific than consumer flat-rate plans, competition can still spur price wars.

Analysts caution that the pie is still expanding extraordinarily rapidly, however. Other companies were bound to catch up with nationwide coverage eventually, and this competition is healthy for the market, they say.

Nextel, the smallest of the nationwide providers, still has cards up its sleeve in approaching the lucrative business market, however.

"You have more formidable companies with similar strategies now," said Peter Friedland, an analyst with WR Hambrecht. "But Nextel really does have a differentiated product. In a market with six companies all offering the same thing, which one would you rather be?"