Walking, Not Running, to PTT

Rival U.S. carriers are trying to catch up with Nextel Communications Inc. (Nasdaq: NXTL) by implementing digital push-to-talk (PTT) services, the feature that allows your mobile phone to work like a walkie-talkie. However, analysts say that such services are unlikely to be available before the end of next year, and questions remain about whether the technology will be as profitable for others as it has been for Nextel.

The Nextel "Direct Connect" system allows users to push a button and to chat with another person or group on the Nextel iDEN network. The system currently has a range of several hundred miles, but the Reston, Va.-based operator says it will roll out a nationwide service in the second half of next year.

Nextel says more than 150 million Direct Connect calls are made daily on its networks with nearly 50 billion such calls being made in 2001. The company sees an average revenue per user (ARPU) of over $70 a month from its business-oriented customer base. Its Direct Connect PTT technology -- once dismissed by rivals as a plain and dowdy imitation of a walkie-talkie -- is a major contributor to an ARPU metric that has become the envy of the industry.

Analysts say that U.S. carriers consider PTT a technology priority, even though the carriers are denying it.

"For competitive reasons, we're not announcing any plans for push-to-talk," Jenny Morford, a spokesperson for Sprint PCS (NYSE: PCS) told us.

"We can't talk about that at all, no comment," a non-spokesperson for Cingular Wireless says.

And those are just the carriers we managed to push to talk. AT&T Wireless Services Inc. (NYSE: AWE), T-Mobile USA, and Verizon Wireless had not returned our calls by press time.

Yet there is plenty going on behind the scenes. Major CDMA and GSM/GPRS carriers as well as a number of smaller operators are looking at PTT systems. However, Phil Marshall, program manager of mobile and wireless technologies at Yankee Group, and Mark Lowenstein, managing director of consulting firm Mobile Ecosystem, both agree that the road to push-to-talk is fraught with difficulties and delays.

"Sprint originally indicated that it would have technology ready by the end of this year," says Marshall. However, he -- like Lowenstein -- is not expecting operators and vendors to have networks and suitable handsets ready much before the end of next year. "I think second half at best," says Lowenstein.

The problem is that cellular networks -- even so-called next-generation networks -- aren't really intended to handle multicast IP applications. Call setup times and network latency and capacity issues are all potential hangups for operators looking at PTT.

Yankee's Marshall says that carriers like Sprint have been looking at combining a softswitch architecture -- to detect and route PTT calls -- with middleware, such as Qualcomm Inc.'s (Nasdaq: QCOM) BREW-based Q-Chat, which brings group calls together, although it is not yet clear that a commercial version of the Qualcomm application is generally available.

However, Mobile Ecosystem's Lowenstein says that call setup and latency issues are proving a particular problem with CDMA systems. "You really need a call setup to be under five seconds and voice latency to be under a second to make [PTT] viable," he says.

Sources that Unstrung has spoken to suggest that Winphoria Networks, one of the softswitch startups that Sprint has been working with, has had trouble achieving those kinds of figures.

Neither Lowenstein nor Marshall could confirm this. "I do know that for a while that Sprint was working almost exclusively with Winphoria," offers Lowenstein. "But now they've brought in a few other suppliers."

Winphoria would not comment either. "We're engaged with multiple carriers in North America," a company spokesperson told Unstrung. However, other names on Sprint's PTT list include Israeli startup Mobile Tornado and Dynamicsoft.

For GSM/GPRS operators, PTT represents a capacity problem, according to Lowenstein. As with wireless data services, operators will have to juggle how many channels they can dedicate to PTT against the impact that may have on their voice services.

Sonim Technologies Inc. is one of the more prominent startups working on the GSM side of the fence (see Sonim SIPs $18.6M Funding). The San Mateo, Calif.-based company says it is working with one U.S. operator, one British carrier, and an Italian service provider. However, as we've said, initial rollouts are not expected before the end of next year.

Despite all of this activity, Yankee's Marshall wonders whether carriers are blinded to the reality of PTT on their networks. The Nextel success with business customers may be difficult to duplicate. "The guys that are presenting this are pointing to Nextel's $70 ARPU but talking about low-cost family walkie-talkie applications."

Certainly, it seems unlikely that the new entrants to the PTT market will be able to make much headway against Nextel's mature and stable system. "The blue collar market is saturated," says Lowenstein.

However, he reckons that the additional $10 or $20 in ARPU that such a system could bring in may be useful to carriers. Especially if they can sell dedicated devices around a PTT service as well.

— Dan Jones, Senior Editor, Unstrung www.unstrung.com
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