For years, U.S. wireless operators have been looking for innovative ways to compete with the powerful niche that Nextel Communications has created in the mobile market through its integration of a mobile phone and walkie-talkie service known as Direct Connect.
For Nextel’s competitors, the move to packet networks is finally giving them a way to compete using voice over IP (VoIP) solutions instead of network switching solutions that have in the past proven expensive and too difficult to launch.
PTT is clearly the most talked about subject in the wireless industry these days. Verizon Wireless, Sprint PCS and Alltel have all indicated plans to introduce push-to-talk (PTT) services before the end of the year. AT&T Wireless has said it will test PTT this year in Seattle, with plans to commercially launch PTT in 2004, while Cingular Wireless has announced its interest in the capability but hasn’t provided any concrete launch dates.
Nokia, Siemens and Ericsson, worried about the various fragmented solutions coming to market, announced plans in February at the 3GSM World Congress to collaborate to come up with a VoIP open standard for PTT over GPRS and 3G networks. They are advocating a standard using the IP multimedia subsystem (IMS) platform developed by the Third Generation Partnership Project, the group developing standards for W-CDMA technology.
“Push-to-talk is driven by the U.S, but after the 3GSM World Congress, we’ve been getting contacts from Asia and South America,” said Markku Savusalo, director of Nokia’s push-to-talk IP convergence business program.
Nokia expects to introduce a PTT product by the first half of 2004.
Sonim has been targeting the GSM market with its PTT thin-client solution also based on the IMS standard for nearly three years. The company reports market trials with European and North American operators, and last month announced an original equipment manufacturer deal with Ericsson. Ericsson plans to introduce a PTT solution in the second half of the year for both the GSM and CDMA markets.
Both Verizon Wireless and Sprint PCS reportedly will introduce PTT services in 2003 through a product offered by Winphoria, a Tewksbury, Mass.-based soft switch provider. Winphoria’s Global Instant Rendezvous service can be co-located on a carrier’s feature server in the packet network.
Verizon and Sprint PCS have not yet confirmed their PTT vendors.
On the handset side, Samsung Telecommunications America announced plans to integrate a standards-based solution from Togabi Technologies known as PacketCHAT into its new generation of handsets. Samsung expects PTT functionality will become available in mid 2003.
U.S. operators have been helpless during the last six years has they witnessed Nextel steadily increase its market share, post industry-leading ARPU and record the lowest churn in the industry because it can offer the industry’s only truly differentiated product: a device that integrates a mobile-phone and two-way radio. Nextel’s advantage has become even more evident in 2003.
While growth for U.S. carriers has become increasingly stagnant in an industry dominated by pricing wars, Nextel continues to have the luxury of charging more for its differentiated services.
“Push-to-talk (for Nextel’s competitors) is more about reducing churn and stabilizing the user base because, by and large, the menu of services traditional operators offer has been stagnant, causing a collapse in ARPU,” said Bob Egan, founder of wireless consulting firm Mobile Competency.
While operators hope that this voice application might, ironically, become the next “killer application” for the packet data world, it’s difficult to envision a scenario where any carrier can unseat Nextel, at least in the near term. Competing PTT solutions for both CDMA and GSM face technical challenges that center around call latency and call set-up delays that range between three and 10 seconds, according to The Eon Group, an independent Wall Street research firm. Nextel operates a proprietary Frame Relay network that allows the carrier to connect users in less than a second.
For traditional operators, reducing the amount of time it takes for a call to set up is challenging because handsets are set to check the network every six to 10 seconds for incoming calls.
“A competitive product will some day arrive but the timing, capabilities and tradeoffs are uncertain,” said Tim O’Neil, president of The Eon Group. “We believe it will be longer than what most people expect.”
Nextel itself has purchased exclusive rights to a CDMA 1X VoIP solution from Qualcomm, known as Qchat, even though the company has yet to announce any intentions to migrate to a CDMA-based 3G technology. Nextel reports that it is working hard to get Qchat to reach call set-up delays of less than three seconds, according to a recent research report from Merrill Lynch. Nextel officials insist that three seconds is the minimum latency acceptable.
“We’re very comfortable with our leadership in the space,” said a Nextel spokeswoman. “Our customers are really accustomed to the immediacy of Direct Connect. I don’t think those people are going to settle for anything slower … It remains to be seen what competing offers are actually delivered.”
Marketing is another obstacle U.S. carriers will face if they compete head to head with Nextel. The company’s Direct Connect service is quickly becoming the industry standard among various user groups such as contractors, plumbers and electricians. Most of these groups won’t buy a competing service if they can’t reach their existing contacts, note analysts. Over the past several years, Nextel has been successful in creating “mini-monopolies” in all major U.S. cities.
For instance, a plumber or contractor is more likely to buy Nextel’s service if everyone else in his profession uses Nextel phones. Many housing contractors must agree to use Nextel’s service to communicate with other contractors on the job.
These disadvantages are why PTT vendor Sonim has been persuading North American operators to go after markets Nextel has yet to penetrate with services Nextel cannot offer to date.
“We’ve had significant discussions with North American operators. I’ll be honest, their mind-set was around a ‘me, too’ solution,” said Rahul Kahanna, director of marketing with Sonim. “What we’ve been spreading to operators is to change the game on Nextel.”
The family, teen and white-collar markets are less sensitive to latency issues, which can be masked with a fake ring tone or a set-up process through which an end user presses a button, sends an invitation and receives acceptance to start the PTT session. By the time that process is concluded, a PTT session has begun.
In addition, Kahanna said Sonim’s solution also allows for features Nextel cannot offer today, such as the ability for an end user to look on the phone’s screen and observe who is available for a two-way chat.
Dynamic group creation also would allow users to create walkie-talkie groups on the fly using the handset, a potentially compelling application for teenagers wanting to communicate with various groups of friends.
While Sprint PCS expects to compete against Nextel for new customers, it also plans to attack white-collar users who haven’t necessarily been attracted to dispatch and families and teenagers who want to stay connected with each other, said Len Lauer, president of Sprint PCS.
Both of these non-traditional PTT markets are segments Nextel has slowly begun to target as well, but the field remains open since Nextel has not become an entrenched player yet. Nextel reported in the fourth quarter that 2.7 million of the company’s more than 10 million customers are white-collar individual users.
The company, through a joint venture with Boost Mobile, is testing a PTT service offering for the teen market in California and Nevada
Nextel reported 30,000 teen customers in the fourth quarter, but has yet to decide if it will target that market with a nationwide service.
“Push-to-talk could turn out to be a good consumer product, but it depends on how things are priced,” said Phil Redman, research director with the Gartner Group. “New services are typically over priced in the beginning, which may cause them to take a while to grow.”
But targeting the consumer market isn’t likely to result in the same financial success of Nextel, which has built its entire business around high-paying enterprise customers.
“We question the ARPU and churn advantages the white-collar, teen and family markets might offer since these segments are more price sensitive for both handsets and service plans,” research firm The Shosteck Group said in a recent report. “Perhaps the only benefits lie with those mobile operators who are the first to overcome the technology shortcomings and are able to mimic the business model Nextel has proven to the industry. Ultimately, end-users do want a choice.”
Lauer says he is a realist when it comes to PTT’s financial potential.
“We don’t expect a huge lift in ARPU,” he said. “Our business is different. We have a much larger base made up of consumers. This will be another great service that will go along with our strong focus on data.”
At any rate, walkie-talkie services won’t just be for truck drivers and plumbers anymore.