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NII Holdings, the once-ailing telecommunications company known formerly as Nextel International, decided that Latin America would be its savior. When it went bankrupt in 2002, Nextel International sold all of its Asian and Canadian assets but kept its walkie-talkie service in Mexico, Argentina, Brazil and Peru.

The strategy worked. The revitalized NII reported a 20% rise in revenue to US$939 million in 2003. Subscribers grew 17% and the client turnover rate dropped to 2% from 2.7%.

That's not because more subscribers are dialing away on their cell phones. Rather, it's because they aren't dialing at all.

NII sells Motorola's push-to-talk handsets. Callers push a button to connect with each other in less than a second, using walkie-talkie-style technology. The handsets also feature global position satellite technology, text messaging, e-mall and Web access.

NII expects subscribers to grow 19% in 2004 along with a 28% rise in revenue, as the company expands push to talk service among users in and between Canada, the United States, Mexico, Peru, Brazil and Argentina by the end of 2004. The United States and Mexico began cross-border service in 2003. The company is wrapping up and plans to make the service available nationwide by year's end.

It is not clear yet whether cross-border service to South America will equal the initial success of U.S.-Mexico push-to-talk. "We need a few months under our belt before we can determine if it is running at a pace as rapidly as the service launched last year, when we attracted more than 90,000 subscribers in a short time," says NII CEO Steve Shindler. But he is confident of growth. Compared with other wireless international calling, "push-to-talk international is like taking an airplane instead of a bus," Shindler says.

In Latin America, NII's niche is narrow but deep. The company owns at least a third of corporate mobile subscribers in every country its networks cover, according to Pyramid Research. Internationalizing push-to-talk service strengthens the company's competitive edge.

NII claims to be rebounding in Brazil, which has been a tough market. The company failed to get enough subscribers to justify expanding there, and it was forced to cut investment in the country during its bankruptcy reorganization. Yet NII stayed, weathering price wars that made push-to-talk seem even more expensive. More than a dozen competitors in Brazil have offered discounts to business customers that included flat rates, no charge for in-network calls and free long-distance calling between company facilities, says Juliana Abreu, a senior analyst for Pyramid Research. The price-cutting has since bottomed.

Dark clouds, however, are churning on the horizon for NII. Behemoths such as Spain's Telefonica Moviles and Mexico's America Movil, controlled by Carlos Slim, Latin America's richest man, are keen on walkie-talkie-type technology. Most worrisome for NII is America Movil's Mexican subsidiary, Telcel. Mexico accounts for almost half of NII's customers and nearly 90 percent of its operating income. Telcel, which already owns more than 75% of Mexico's wireless market, is laying plans to pounce on the push-to-talk niche.

Telcel is studying the market closely, says spokeswoman Patricia Ramirez. "If it happens, it will be by the end of this year, and it will be a very serious and quite competitive approach," says Ramirez. "Telcel is examining what wireless platform to use, which business segments to target, and how to market to them."

Telefonica and America Movil have pockets deep enough to do pretty much whatever they want in the Latin American telecommunications market. Telefonica Moviles services 36 million subscribers while America Movil services 42 million, smothering markets with huge networks to capture masses of individual prepaid customers.

The two companies have grown by gobbling up second-tier players. Earlier in 2004, for example, Telefonica acquired BellSouth's Latin American mobile assets for $5.8 billion. Slim has gone on similar multi-million dollar sprees of late. While competition is brewing, NII welcomes the bigger players.

"It will actually drive business for us because we have been at it longer," says NII Vice President of Business Development Mike Sullivan. "We're confident that we will do fine in this supposed sea of coming competition."

NII, with about 1.5 million subscribers, could care less about being the biggest Latin operator. The company wants to dominate its niche. In Mexico, for example, average revenue per user is $17 a month for most carriers, compared with $78 for NII, according to consultancy Adventis.

Like individual customers, businesses pay more for push-to-talk and shell out an additional premium for international calling. But companies--especially transportation, construction, delivery and logistics concerns--often recoup their expenses when employee productivity increases. NII declined to give specifics about businesses that have signed up for a cross-border service between the United States and Mexico.

Verizon, the largest U.S. mobile phone operator, launched domestic push-to-talk service last August to compete with NII's parent company Nextel, the nation's fifth-largest provider. But Verizon has no plans to offer cross-border connection, says spokeswoman Brenda Rainey.

ROOM TO GROW

Walkie-talkie calling is a sliver of the market, for now.

Traditional handsets     98.6%
Push-to-talk handsets     1.4%

Note: table made from pie chart.

* NII subscribers in Latin America in 2003

SOURCE: Pyramid Research

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