Cellular Titan McCaw to Inject Up to $1.1 Billion Into Nextel : Telecom: Deal is enormous boon to struggling wireless carrier. Firm’s new strategy is to focus on serving business.
Seattle billionaire Craig McCaw, who last year sold his cellular phone empire to AT&T; Corp., said Wednesday that he will invest up to $1.1 billion in wireless communications carrier Nextel Communications Inc.
The deal is a huge boost for Nextel, which is struggling to roll out a nationwide digital wireless communications system based on technology from Motorola Inc. Nextel had been aiming to compete head-on with the cellular phone industry, but with McCaw’s financial backing and advice it will now pursue a scaled-down strategy focused on businesses with fleets of vehicles and large corps of mobile workers.
“Mixing one part Craig McCaw vision with one part Motorola technology gives us at Nextel a recipe for even more potent integrated wireless business solutions,” Morgan E. O’Brien, chairman of Nextel, said at a New York news conference. O’Brien called McCaw’s backing “the most respectable endorsement obtainable in the wireless industry.”
McCaw has apparently been itching to get back into the burgeoning wireless business since selling his company to AT&T; for $12.6 billion. He was a bidder in the Federal Communications Commission’s recent auction of licenses for mobile communications services known as PCS, but he ultimately dropped out, saying the prices were too high.
Nextel, which is about 20% owned by Motorola, was formed in 1987 and has accumulated radio dispatch licenses around the country with the aim of developing the first nationwide digital wireless system. But the firm was dealt a big setback 17 months ago when long-distance telephone giant MCI Communications Corp. broke off plans to invest $1.3 billion in the company.
Shares of Nextel, which had spurted to about $50 a share on news of MCI’s possible investment, plummeted, and many questioned the company’s technology. But with Wednesday’s announcement, Nextel shares rocketed $3.375 to $16.625 on Nasdaq in heavy trading. McCaw and members of his family agreed to initially purchase about $300 million worth of preferred Nextel stock and $14.9 million of common stock, along with about $50 million of common stock owned by Motorola. If the agreement is approved by current Nextel shareholders and various regulatory bodies, McCaw and his family will be allowed to purchase another 39 million Nextel shares at prices ranging from $15.50 to $21.50 a share.
McCaw’s investment “certainly puts Nextel back in the game; without it it’s hard to see how they would have been a player” in the wireless industry, said Steven Hummel, an analyst at Coopers & Lybrand.
McCaw said he will not be actively involved in managing Nextel or attempt to model it after his successful cellular business.
“I have been there, done that, and it is not my intent to do what I’ve already done,” McCaw said in a statement. By following its existing strategy of targeting its technology to the mobile communications market of business users, McCaw said, “I believe Nextel has the potential to be a unique and important contributor to the wireless industry.”
Although the cellular industry is converting to digital technology, McCaw said most cellular phones do not have the flexibility or capacity to provide voice and paging services simultaneously in a single device, as Nextel’s hand-held transceiver does.
But Nextel, which has been marketing hand-held transceivers for digital phoning and paging in Los Angeles, New York and several other big cities since early last year, has faced immense quality-control problems with its wireless technology. Users have complained of echo and “clipping” of voice conversations as well as blocked call rates of as high as 20%.
Company officials and independent experts say service has since improved.
“Since the summer and fall of 1994, there been strong improvements in the performance, but they still have a ways to go,” said Mark Lowenstein, director of wireless communications at Yankee Group, a Boston consulting firm.
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Profile: Craig McCaw * Age: 46 * Residence: Bellevue, Wash. * Education: Bachelor’s in history, Stanford University, 1971 * Career highlights: Sold family-owned Twin City Cable for $755 million in 1987. Invested heavily in cellular phones and built nation’s largest cellular company. Sold McCaw Cellular to AT&T; for $12.6 billion in September, 1994. Formed ALAACR Communications to bid on personal communications services, or PCS, licenses in 1994, but then pulled out of the bidding. Announced plans to invest up to $1.1 billion in wireless communications firm Nextel. * Family: Married, no children * Quote: When asked last year about his plans for the rest of his life, he said, “If the truth be known, I haven’t got a clue.”
Source: Who’s Who in America, wire reports
Researched by JENNIFER OLDHAM / Los Angeles Times
