AT&T Wireless (AWE) is waving a white flag on the walkie-talkie front.

The teetering Redmond, Wash., wireless giant had planned to introduce two-way radio service this quarter. But executives on a conference call with analysts Friday said there had been a change of plan. Instead of preparing their own offering, AT&T Wireless executives said they would work with other carriers to develop a common platform -- delaying the project indefinitely.

To some observers, the move is just a case of a few more wheels coming off the nation's No. 3 wireless player. But others say the decision is a wise concession given AT&T Wireless' pending merger with Cingular, a joint venture of SBC ( SBC) and BellSouth ( BLS).

"AT&T Wireless is working hard not to look like a lame duck, but I think it is wise for them to wait on push-to-talk," says Yankee Group's Roger Entner. "It takes a lot of focus, energy and money to launch this service."

Bailing out of the solo effort isn't exactly surprising, especially now that Nextel ( NXTL) has virtually run away with the market, say analysts.

A bold illustration of Nextel's dominance of the push-to-talk technology came Thursday, as Nextel tripled its profit in the first quarter ended in March. Nextel's lucrative business users and government customers have found the pricey but addictive walkie-talkie service indispensable, helping the company to reap big proceeds, say analysts.

Users liken the immediacy of push-to-talk communication to AOL's instant messenger. IM's rocketlike acceptance was attributable in part to its being free -- but also to its value in making customers ever more connected. As described by Metcalfe's law, the value of a network increases dramatically as its number of users grows.

"Nextel has benefited from the friends-and-family effect, where everyone wants to be part of the group and are unwilling to leave," says wireless strategist Martin Dunsby with inCode.

Industry observers say the early walkie-talkie efforts from Sprint ( FON) and Verizon ( VZ) have done little more than validate Nextel's technological superiority.

"They can't build a better mousetrap or differentiated push-to-talk service," says Dunsby. "So the best thing Nextel's challengers can hope for is building their own interoperable walkie-talkie systems to help boost revenue."

But don't expect any help yet from Nextel on compatibility, says Yankee's Entner. Even though the Justice Department is reviewing the push-to-talk business, industry experts say there's no rule that says Nextel must open its system to rivals.

"It wouldn't be smart, financially, for Nextel to be interoperable with other carriers until they have five or six million push-to-talk users," says Entner.

Hand it to AT&T Wireless -- they know when to call it quits.

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