Tech sector geeks: is the proposed Nextel/Sprint merger a good thing?
 

I'm a Sprint PCS customer but don't know enough about such things to make an informed opinion.

Story

December 10, 2004
Nextel Said to Be in Talks With Sprint
By ANDREW ROSS SORKIN and KEN BELSON

Nextel Communications is in advanced talks to merge with the Sprint Corporation, according to executives involved in the negotiations. The deal would form the third largest cellphone company in the nation, with 39 million wireless subscribers.

A deal could be reached as early as next week if the talks continue apace. In the meantime, the talks may bring to the game a third player, Verizon Wireless, which held several internal conference calls yesterday to discuss the possibility of making a run at Sprint, executives close to Verizon Wireless said.

Whatever the outcome, the industry appears ready to shrink once again, just six weeks after Cingular's acquisition of AT&T Wireless formed the largest mobile phone provider in the country with 46 million subscribers, surpassing Verizon Wireless with 42 million. The talks between Sprint, currently No. 3 in the market, and Nextel, No. 5, are also in part a response to Cingular's move, which forced other rivals to reconsider their competitive positions.

A merger of Sprint, which provides wireless service and traditional fixed-line service, and Nextel, best known for its push-to-talk walkie-talkie feature and loyal business customers, would marry two very different businesses and an assortment of overlapping and conflicting technologies.

Executives close to the Nextel-Sprint negotiations say the talks are at a particularly delicate point and may well collapse. The negotiations took on a sense of urgency in recent weeks because the market valuations of the companies had become more aligned - Nextel and Sprint had each been worth about $31 billion - allowing for the possibility that the companies could call the deal a merger of equals and take advantage of certain tax efficiencies.

But yesterday, as shares of Nextel and Sprint rose significantly after the negotiations were reported on CNBC, the executives said that they had begun to worry that the talks might fall apart because Nextel's market value was now about $32 billion and Sprint's had jumped to $36 billion. Shares of Nextel, which rose 6.6 percent, closed at $29.81. Shares of Sprint rose 7.9 percent, closing at $24.28.

When comparing wireless units, Nextel is the more valuable carrier. Though it has eight million fewer subscribers than Sprint, Nextel's customers pay nearly 10 percent more each month. Nextel's customer turnover rate - a crucial industry gauge - is half that of Sprint's. Nextel is also more profitable than Sprint. Almost one-quarter of Sprint's 23 million customers come from wholesale agreements with resellers like Virgin Wireless, and more than half of Sprint's revenue still comes from its shrinking fixed-line services.

The merger talks, which have been on and off for years, resumed in earnest last month after federal regulators moved closer to resolving the thorny problem of Nextel's radio spectrum, some of which overlaps with airwaves used by public service agencies, the executives said.

The Federal Communications Commission said that it wanted to give Nextel 10 megahertz of valuable 1.9-gigahertz spectrum in return for abandoning other spectrum it holds. Nextel will also have to pay several billion dollars to help public agencies take over its older spectrum. The offer, which Nextel has not yet approved, lifted a cloud of uncertainty which had hung over the company.

"It's no coincidence that things are heating up now that spectrum swap is getting done," said Jonathan Schildkraut, an analyst at SG Cowen & Company. "No one wanted to inherit the uncertainty."

Nextel has been an unusual player in the wireless phone industry. Unlike the other major wireless companies, it has built its network using 700-, 800- and 900-megahertz radio spectrum. For the most part, the rest of the industry, including Sprint, uses 1.9-gigahertz radio spectrum. That difference has forced Nextel to rely on its own network technology, which is not used by its competitors. Its technology is less able to provide high-speed data services that are seen as the future of the industry.

As Nextel moves into the 1.9-gigahertz spectrum, it will need to upgrade its network; in the event of a merger with Sprint, that technology would need to be compatible with Sprint's.

Roger Entner, a telecommunications industry analyst with the Yankee Group, a market research firm, said Nextel, if it merged with Sprint, "would not have to build that network all over again." Moreover, he argued, the two companies have complementary customer bases, because Sprint is stronger in the consumer market and Nextel is the best in the industry at serving businesses. "Sprint has cracked the code reasonably well on consumers and Nextel on business," he said, adding that the idea the two companies would merge is "a plausible story."

Still, a deal would have to overcome enormous hurdles. The combined company would most likely have to spin off or sell Sprint's traditional landline business, a potentially complicated process of breaking off pieces of the company. The combined company would also have to develop more wireless phones that work on both networks.

Matt Richtel, in San Francisco, contributed reporting for this article.

Wow, I was thinking of signing up with Nextel but seeing that they might end up with Sprint, I think I'll pass. People I've known who had Sprint hated it.

Thanks for the headsup!

I don't hate Sprint but cannot give it a glowing endorsement either. My complaints with them center around marginal customer service and a coverage area that disappears when you get out of earshot of a major highway. Their prices and plans mesh with my needs though so I have chosen to overlook these shortcomings.

I use Sprint right now until I my contract expires in January. I am going to move to T-mobile but I have always wanted Nextel but they don't have service where I live.

Well, if Sprint can get Nextel's customer service, and drop its own system it will be a good thing. Looking at the coverage maps they both seem to cover major cities and some of the interstates, so it really isn't going to help coverage area much at all. Sprint also has the walkie talkie feature, that is every bit as good as Nextels (according to customers), but with limited advertising in business rags, nobody knows about it. I'm not sure Verizon was ever able to get theirs fixed, when it came out it was complete garbage because they rushed it to market.

The one thing Sprint has done well is plan for the future network upgrades and choosing CDMA to start with. With their upgrade to "3G" technology they also set up their network for future growth as well.

It should be intresting, because Nextel's upgrade is going to cost them a bundle.

Have always hated Sprint. This could "help" current Sprint subscribers, but I think it more likely to hurt current Nextel subscribers.

Like I said, if Sprint just buys their customer service it would be a HUGE step in the right direction for Sprint customers at least.

It is never hard to find anyone that HATES any of the cell phone companies, and after seeing how the technology works, its just damn surprising that you get a dial tone.

Nextel employees should start bracing themselves now for the quarterly "Oh my God, are they going to lay off our division?" meetings.

True.

I have had just about every service over the last 10 years available in Colorado. Customer service wise, Sprint was the worst. Have to wait and see on this one.

I used to work for Sprint so I've only ever had a Sprint PCS phone, but I've never had any trouble with it.

Trust me, I have no love for the company as a whole, but I can't complain about the wireless service. They have always done me right, and I have never had trouble with the coverage area.

You must not live near the campus. How stupid is it that coverage drops at pretty much every major intersection near the CORPORATE HEADQUARTERS?! :rolleyes:

Sprint was a great company to work for, constant worries about getting laid off notwithstanding.

I lived less than a mile from the campus when I worked there, and never had a dropped call in that area in 2 years. I understand the beef people would have with the customer service (or lack thereof), but I never had even the slightest issue with my phone.

As far as the merger goes, this is pretty much inevitable. Probably won't be the last one either. I actually expected it to come a lot sooner than this.

Good news for me is I didn't sell all of my FON stock after I quit. :)

As far as coverage goes, Nextel has the best I have encountered.
Case in point, I have a job going on near Polo Mo.
There is a dead zone that encircles that area.
We had guys out there with damn near every service under the sun.
The only one who could get any reception was the crew with NEXTEL (now they did have to stand on an earth mound hold one foot in the air and face east, but they did get reception).

I didn't live near the campus but I did work there for a while. I always heard that calls dropped a lot in that area, but never experienced it myself, except in elevators or something.

I don't really think it was that great of a company to work for. I dont know if it was just them, or if it's the nature of the beast working for a monolithic company of that size, but it was like a politics fantasy football league. And anytime you heard anything from management, you had to assume the opposite because they were never being forthcoming.

That was the main thing that I hated, you couldn't believe anything you heard from above. There were emails coming out all the time about how they weren't planning widespead outsourcing, or how they were going to reorganize but didn't anticipate any cuts, or something like that, but deep down you knew they would fire you 5 minutes ago if they thought it would save them a nickel.

You obviously have never driven rural Missouri then. If I get off of a major thouroughfare I'm going to be either roaming or without a signal. Analog roam = instant battery death.