February 19, 2004 10:51 AM PST

Nextel hits bump for network upgrade

Nextel Communications said it is months late on the launch of a technology to boost its network calling capacity, an upgrade key to keeping pace with competitors.

The U.S. wireless carrier now plans to install a faster voice coder, or "vocoder," by the middle of this year, Chief Operating Officer Tom Kelly told financial analysts in a conference call on Thursday. Nextel said in late 2002 that the vocoder, expected to double its network capacity, would be in place by the third quarter of 2003.

Vocoder technology puts an audio processor inside phones that translates voices into bits of data to be sent over the airwaves. The faster a vocoder operates, the more calls a cell phone network can handle simultaneously.

Kelly did not provide a specific reason for the delay, other than to say that "certain types of calls" using the new gear haven't yet met Nextel's quality standards. Tests on a fix Nextel are expected to end in a few weeks, he added.

U.S. wireless carriers are feeling a capacity pinch, after racking up record-setting subscriber gains over the last five or six years. To create more room on their networks, most are migrating to third-generation cellular equipment that is capable of shuttling calls at broadband speeds.

But Nextel has been slow to adopt 3G technology, which comes with a billion-dollar price tag. Instead, it's counting more heavily on using vocoders to handle the job for now.

The delay was a blemish on Nextel's better-than-expected fiscal fourth-quarter 2003 earnings report on Thursday. Reston, Va.-based Nextel, the fifth-largest wireless carrier in the United States, said it had earnings of $530 million, or 48 cents per share, for the quarter ended Dec. 31. The results beat Wall Street analysts' predictions of 41 cents a share.


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