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Sprint and Nextel: Cellular Consolidation Continues

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


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

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

The merger is expected to close in the second half of 2005. It's too
early to figure out the technology migration plan for existing Nextel
customers, but it's unlikely to be a smooth one. Recognizing one of the
unique Nextel assets, the companies promise to migrate push-to-talk to
the new CDMA network, though it should be noted that Verizon hasn't had
an easy time introducing such a service on its network. It was
particularly interesting that the merger announcement stated that
push-to-talk would be migrated to Sprint's EV-DO network. First, Sprint
doesn't currently offer EV-DO service, and second, EV-DO is
fundamentally a data-only service. Does this imply that customers will
need to wait for the arrival of EV-DO-capable handsets, which currently
don't exist, to get the new service? Yes, this will be interesting.