The most unlikely of technology mergers has begun as Sprint Corp. announced Friday that it closed its $35 billion acquisition of Nextel Communications Inc. The new Sprint Nextel Corp. will begin trading under the “S” ticker symbol this week.
The closing date, which Sprint referred to as “Day 0” of the new company’s operations, is just the beginning of what is likely to be an arduous and lengthy network-integration process. Cingular Wireless L.L.C., which acquired AT&T Wireless Services Inc. late last year, has said its network-integration process that includes similar network technologies could take up to two years.
Analysts have noted that the biggest potential challenge for Sprint Nextel will be attempting to integrate its diverse network operations without alienating customers. Nextel has a history of industry-leading customer churn results, while Sprint has posted improving churn during the past several quarters.
Sprint runs a nationwide CDMA-based network operating exclusively in the 1.9 GHz spectrum band, while Nextel’s network uses Motorola Inc.’s proprietary iDEN technology and a mishmash of contiguous and noncontiguous spectrum in the 800 MHz and 900 MHz bands. Nextel also is set to receive 10 megahertz of spectrum in the 1.9 GHz band as part of a spectrum-realignment initiative.
Sprint Nextel has said it would continue with Sprint’s planned deployment of CDMA2000 1x EV-DO technology across its network that began this summer, and eventually it plans to migrate Nextel’s iDEN-based network in the 800 MHz spectrum bands to CDMA during the next several years. Nextel’s Direct Connect offering also will be migrated to the EV-DO network in the 2006 or 2007 time frame, following the deployment of EV-DO Revision A, though the company said it would continue to maintain the iDEN network for Direct Connect-centric customers.
Analysts have said the continued support for Direct Connect could prove critical as competing services using CDMA networks are not expected to provide competitive performance for several years. The push-to-talk space is expected to gain additional competition later this year as the industry’s largest operator, Cingular, is planning to launch a PTT service that is rumored to be using Kodiak Networks’ circuit-switched solution.
The Sprint Nextel integration could have a public face as soon as next month, as Sprint reportedly is looking at early September as “Day 1” of the new Sprint Nextel that will include a massive rebranding and advertising campaign.
Sprint has already said it will move forward using the Sprint brand as the primary consumer name for the combined operations, with the Nextel brand connected through a tag line. The Nextel brand will remain the primary image for current Nextel customers, as well as future marketing of its highly regarded Direct Connect walkie-talkie service.
Sprint has already made modest rate-plan changes with the elimination of its traditional postpaid Free & Clear rate plans earlier this year in favor of its overage-protecting Fair & Flexible plans. Analysts expect additional plan changes that will allow calls placed between Sprint and Nextel customers to be billed as on-network, and thus free to most users. The move would provide Sprint Nextel with a competitive offering to similar free on-network calling offered by larger rivals Cingular and Verizon Wireless.
Sprint Nextel also will have to figure out where to make cuts among its nearly 80,000 combined employees. Sprint said it plans to spin off its local wireline division, which currently accounts for 18,000 workers, next year, but it said it will likely make more cuts.
In the shadow of the deal’s closing, several of Sprint’s wireless affiliates continue to claim the combined Sprint Nextel operations will violate several clauses of their affiliate agreements. Sprint has settled several of the claims, but as of last week additional claims remain pending against the carrier.
Sprint wireless affiliate Alamosa Holdings Inc. reported last week that its recently acquired subsidiary AirGate PCS Inc. filed a complaint against Sprint and Nextel in connection with the deal.
The complaint alleges the acquisition will breach exclusivity covenants of AirGate’s affiliate agreement and that Nextel unlawfully interfered with AirGate’s exclusive rights under its affiliate agreements. AirGate’s complaint seeks an order directing Sprint and its affiliates to uphold their agreements with AirGate; an injunction preventing Sprint and Nextel from taking any action or entering into any agreement that would violate AirGate’s exclusivity covenants; a judgment declaring rights, remedies and obligation of the parties under the agreements; and unspecified damages.
Alamosa, which is Sprint’s largest wireless affiliate with nearly 1.5 million customers, said it has been in discussions with Sprint in an attempt to resolve the issues raised by its pending acquisition of Nextel. However, Alamosa added, “It is unlikely that the parties will be able to reach a mutually acceptable agreement prior to the closing of the merger.”
“Neither Sprint nor Nextel should be allowed to breach previous agreements in pursuit of their goals,” said David Sharbutt, chairman and chief executive officer of Alamosa. “Sprint agreed that AirGate and Alamosa would be the exclusive providers of wireless services in their territories and that they would be entitled to specific performance of their agreements with Sprint, and we expect Sprint to fulfill its contractual commitments to AirGate and Alamosa.”
Analysts have noted that AirGate’s affiliate agreement with Sprint is the most exclusive among the affiliates as it prevents Sprint from offering any wireless service in AirGate’s service area regardless of spectrum used. The other affiliate agreements prevent Sprint only from offering service using the 1.9 GHz spectrum band.
Sprint did manage to clear an affiliate hurdle last week as it announced a forbearance agreement with rural telecommunications provider Shenandoah Telecommunications Co. Shentel said the agreement reflects the parties’ desire to avoid litigation while they renegotiate terms of Shentel’s current affiliate agreement, which will be violated by Sprint’s acquisition of Nextel.
Terms of Shentel’s forbearance agreement are similar to an agreement reached between Sprint and affiliate UbiquiTel Inc. earlier this month. Those terms include several provisions designed to protect Shentel and UbiquiTel’s CDMA customer bases from competing iDEN services that will be offered by Nextel in Shentel’s and UbiquiTel’s service areas.
Sprint also announced last week it successfully completed a tender offer for disgruntled affiliate US Unwired Inc.’s outstanding common stock as part of a $1.3 billion acquisition. Both companies were in the midst of court proceedings brought by US Unwired against Sprint claiming the pending acquisition of Nextel would violate portions of its affiliate agreement.
