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

JimNasium · 12-10-2004, 08:04 AM

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.

12-10-2004, 08:04 AM	Topic Starter
JimNasium Voodoo Chile Join Date: Jan 2001 Location: At the crossroad Casino cash: $2913902	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.
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