The wireless market may look like it's approaching the saturation point, but Nextel (NXTL) still sees plenty of room to grow.
Some investors wonder how fast the wireless market can grow, now that there are more people in the U.S. with cell phones than without them. But Reston, Va., walkie-talkie specialist Nextel
proved Thursday that there are new growth markets to be tapped. Nextel's teen-aimed prepaid service subsidiary Boost Mobile signed up 314,000 new users last quarter. That's more than a third of Nextel's total subscriber additions during the period.
Nextel's CFO Paul Saleh is encouraged by the Boost performance, and said in an interview Thursday that there are many more untapped or underserved markets still available. Saleh ran through a list of opportunities including preteens and seniors. He also says there is ample room to grow in markets like government workers and small-to-midsize businesses where users would opt for a work phone in addition to their personal phone.
The big message here, from a Nextel standpoint, is that the pending merger with
will allow the combined company to be all wireless things to all customers -- and even multiple things to individual customers.
But analysts say that's a pretty ambitious strategy, considering the U.S. market is quickly approaching 70% penetration levels. Typically, at these levels of ownership, most markets start to cool off, since there are so few people shopping for new service. In fact, industry experts predict that wireless subscriber growth will plateau this year.
So far, however, we have seen few signs of that slowdown. The three major players --
, a joint venture of
, jointly owned by
; and Sprint -- have each reported huge and, in some cases, record net new-user growth.
But some observers say talking new-niche growth helps Nextel to distract investors from slackening growth in regular subscribers.
"If you took out Boost, a lot of those key metrics wouldn't look so good," says American Technology Research analyst Albert Lin. "From that perspective alone, they are almost forced to treat Boost as a normal part of the business." Lin has a neutral rating on the stock.
But while the Boost business isn't exactly a core operation, CFO Saleh says it is complementary. Boost allowed Nextel "to target a market" of people with credit issues or no credit histories that it couldn't have reached with its traditional monthly postpaid calling plans, Saleh says.
The strategy seems to be paying off, and investors say they see Boost customers, hooked on walkie-talkie chat today, becoming Nextel customers tomorrow.
Curiously, though, industry watchers aren't as optimistic about the prospects of Nextel selling wireless phone owners a second phone for business use.
The trends seem to be going the other direction, analysts note. New phones come loaded with Web browsers, email applications, instant messaging, two-way radio features -- basically a converged device that promises to solve all your go-getting mobile communications needs.
"People seem to be going toward one device," says American Technology analyst Lin.
Nextel shares dipped 48 cents to $28.51 in afternoon trading Thursday.