Following months of speculation that increased in intensity during the past several days, Sprint Corp. and Nextel Communications Inc. reported a deal this morning to combine their operations into what the two telecom providers call a $35 billion “merger of equals.”
The newly formed Sprint Nextel operations will serve more than 35 million customers, including Sprint PCS’ 2.8 million resale customers, and strengthen Sprint’s current position as the nation’s third-largest wireless operator behind Cingular Wireless L.L.C. and Verizon Wireless. The carriers also said the new company would operate networks covering approximately 262 million potential customers, with analysts estimating an average of 59 megahertz of spectrum in most of the nation’s top markets.
The merger, which is expected to close during the second half of next year, calls for Sprint and Nextel shareholders to each own half of the new operation. Each current Sprint share will be exchanged for a new share in Sprint Nextel and each current Nextel share would be exchanged for a cash/stock combination equal to 1.3 shares of Sprint Nextel.
Sprint Chairman and Chief Executive Officer Gary Forsee will become president and CEO of Sprint Nextel, while Nextel President and CEO Tim Donahue will be chairman of the new operation. Other executive appointments include Sprint President and Chief Operating Officer Len Lauer serving as COO of Sprint Nextel; Nextel Executive Vice President and Chief Financial Officer Paul Saleh serving as CFO of Sprint Nextel; Nextel Executive VP and COO Tom Kelly will be Sprint Nextel’s chief strategy officer; and current Nextel executive VP and Chief Technology Officer Barry West will be CTO of the new operation.
The company’s new board of directors will consist of 12 members split between Sprint and Nextel and will include two co-lead independent directors. The company will have its executive headquarters in Reston, Va., where Nextel is based, while its operational headquarters will be in Sprint’s Overland Park, Kan., campus.
Sprint Nextel said it would continue with Sprint’s planned deployment of CDMA2000 1x EV-DO technology across its network and plans to eventually migrate Nextel’s iDEN-based network in the 800 MHz spectrum bands to CDMA over the next several years. Nextel’s much-heralded walkie-talkie Direct Connect offering will also be migrated to the EV-DO network in the 2006 or 2007 time frame following the deployment of EV-DO Revision A.
Nextel will also abandon its plans to deploy Flarion Technologies Flash-OFDM technology, which the carrier has launched in select North Carolina markets, in favor of an EV-DO deployment. Analysts noted that Sprint Nextel could still launch a Flarion-based network using its combined 2.5 GHz spectrum holdings, which Sprint Nextel noted covered 85 percent of households in the top 100 markets.
Sprint Nextel is also expected to use Nextel’s pending 1.9 GHz spectrum, which the carrier is set to receive as part of a spectrum swap with the Federal Communications Commission. FCC Chairman Michael Powell today said the 800 MHz obligation will transfer to the proposed merged entity.
The combined operation is also expected to deliver more than $12 billion in operating cost and capital investment savings through the reduction of cell sites and switches; a reduction in capital expenditures; migrating Nextel’s backhaul traffic to Sprint’s long-haul infrastructure; consolidated customer care, billing and information technology costs; reduced sales and marketing costs; and lower general and administrative costs.
Sprint also said it plans to spin off its local wireline operations after the merger closes in a tax-free transaction to Sprint Nextel shareholders, though it has not yet determined if the spinoff will include its Sprint North Supply business.
In addition to spinning off its local wireline operations, Sprint said it planned to initiate discussions with its affiliate partners, which serve more than 3 million subscribers, regarding their ongoing relationships. Sprint’s current affiliate arrangements provide the use of Sprint’s spectrum and rights to market Sprint PCS services in smaller markets to its affiliate partners.
Nextel noted the merger would also trigger certain share purchase rights with its affiliate Nextel Partners Inc. that could force Nextel to acquire the 68 percent of Nextel Partners it does not currently own at a “fair market value.” Sprint Nextel said it would analyze the possible purchase of Nextel Partners in the context of the merger process.
