Sprint and Nextel: Cellular Consolidation Continues

The Sprint and Nextel merger offers a number of potential benefits to the two companies and their stockholders, and possibly to their customers as well.

Dave Molta

January 6, 2005

3 Min Read
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The answer to the latter question, perhaps not surprisingly, is "no."The new company, which represents a "merger of equals" rather than atakeover of one by the other, will be called Sprint Nextel. Undoubtedly,there will be winners and losers amongst those people currently employedby the two companies, and many lost jobs, but those involved in themerger planning have made significant efforts to accommodate both sides.The company's new president and CEO, Gary Forsee, comes from Sprint; thechairman, Timothy Donahue, from Nextel. The COO, Len Lauer, comes fromSprint; the CFO, Paul Saleh, from Nextel. Executive headquarters will belocated in Reston, Va., Nextel's home base; operational headquarterswill be located in Overland Park, Kan., Sprint's turf.

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Clearly, there are a number of potential benefits to the two companiesand their stockholders, and possibly to their customers as well. Nexteland Sprint already lead the industry in average monthly revenue per user(ARPU) at $70 and $62, respectively (2Q 2004). Significant operationalefficiencies will be achieved through the merger in infrastructure,marketing, sales, support and general administrative costs. The newcompany's overall spectrum position is greatly enhanced, and it will bethe only cellular company to have significant spectrum assets in boththe 1.9- and 2.5-GHz bands--prime real estate in this business. Andpotential market and service synergies exist as well. Nextel hasstrengths in the small and midsize business markets; Sprint has morestrength in consumer markets. Nextel brings significant business mobileapplications expertise to the table, and Sprint has one of the largestIP networks in the world.

But don't underestimate the challenges. Unlike AT&T Wireless andCingular, which both used identical technologies, Sprint and Nextelprovide services on fundamentally incompatible network infrastructure.Perhaps not surprisingly, the new company will jettison Nextel'sMotorola-based iDen network technology in favor of Qualcomm's CDMA, thetechnology used by both Sprint and Verizon Wireless. Interestingly, boththe Chief Strategy Officer, Tom Kelly, and the Chief Technology Officer,Barry West, come from Nextel. That's some pretty interesting corporatepolitical maneuvering.

The merger is expected to close in the second half of 2005. It's tooearly to figure out the technology migration plan for existing Nextelcustomers, but it's unlikely to be a smooth one. Recognizing one of theunique Nextel assets, the companies promise to migrate push-to-talk tothe new CDMA network, though it should be noted that Verizon hasn't hadan easy time introducing such a service on its network. It wasparticularly interesting that the merger announcement stated thatpush-to-talk would be migrated to Sprint's EV-DO network. First, Sprintdoesn't currently offer EV-DO service, and second, EV-DO isfundamentally a data-only service. Does this imply that customers willneed to wait for the arrival of EV-DO-capable handsets, which currentlydon't exist, to get the new service? Yes, this will be interesting.From a broader perspective, this merger is good news for the overallU.S. cellular market. After AT&T and Cingular tied the knot, creating acompany with about 47 million subscribers, it was inevitable thatsmaller players like Sprint and Nextel would need to make some moves.Combined, Sprint Nextel will have about 36 million customers, assumingthe company can hold onto them--not an easy thing in an era of numberportability. Verizon, the second largest U.S. carrier, has about 41million customers. Between the three, there will likely be significantcompetition in the U.S. market as well as robust nationwide coverage andoperational efficiencies. While some might argue that more companieswould provide a better competitive landscape, the scenario that unfoldedthis week seems better for competition than a Verizon acquisition ofSprint, which was also a hot topic of recent rumors. The odd-company-outis T-Mobile, with about 16 million subscribers in the United States.

Dave Molta is Network Computing's senior technology editor. Write to him at [email protected]

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