Bolstered by a relatively speedy and uneventful approval process and a new ticker symbol that began trading on the New York Stock Exchange last week, Sprint Nextel Corp. said it is in position to become a differentiated wireless provider focused on providing advanced services that customers will begin to expect from wireless companies.
“We are not going to be considered a telecom carrier. We are going to be considered a company that knows what media services are about, that knows how to take care of customers, and deliver applications that customers ought to expect into the future,” said Sprint Nextel Chief Executive Officer Gary Forsee last week after opening the NYSE.
The carrier said it expects to unveil details of those plans beginning next month when it launches a wide-ranging media and advertising campaign touting the benefits of the new Sprint Nextel.
“You won’t be able to miss us,” added Len Lauer, Sprint Nextel chief operating officer.
To support those plans, Sprint Nextel laid out several initiatives that the carrier said would improve both its network quality and capabilities. Those efforts include continued upgrades to its existing network and deploying new technology and devices to enable customers to gain benefits from the advanced network.
Analysts noted that with its combined resources, Sprint Nextel has all the tools necessary to become a dominant player in the wireless and telecom space.
“Sprint Nextel is a spectrum behemoth,” noted Bob Egan, service director of The Tower Group Inc.’s Emerging Technologies group. “You need spectrum and cash to be a successful carrier in the future, and Sprint Nextel has both.”
Barry West, Sprint Nextel chief technology officer, said the company is on track to deploy an updated version of its CDMA2000 1x EV-DO network, which will provide higher network speeds able to support Voice over Internet Protocol services as well as push-to-talk capabilities similar to Nextel Communications Inc.’s highly regarded Direct Connect service. The deployment is set to begin next year.
Unlike Cingular Wireless L.L.C., which made a point of boasting about its network integration plans when it acquired AT&T Wireless Services Inc. last year, Sprint Nextel seems comfortable running two separate networks through at least 2010.
Iain Gillott, founder of iGillottResearch, said Sprint Nextel likely will have an easier time integrating its operations than Cingular and AT&T Wireless, noting Sprint Nextel has little pressure to combine its network assets.
“Cingular has made a point of providing constant updates on the network-integration process,” Gillott said, “while it seems Sprint Nextel is in no hurry to switch off the iDEN network and have instead made numerous claims that it will support both networks for at least a couple of years.”
Gillott added that he thought Sprint Nextel would see more initial cost savings by pressuring peripheral suppliers that support Sprint and Nextel individually to come up with more cost-effective ways to support the combined operations.
“I am sure billing companies like Amdocs [Inc.] and Convergys [Corp.] or infrastructure providers are a little nervous right now,” Gillott said.
Nextel relies almost exclusively on Motorola Inc. to provide its iDEN infrastructure and recently signed a contract extension, while Sprint works with a number of infrastructure providers, including Nortel Networks Ltd., Lucent Technologies Inc. and Motorola.
Forsee added that Sprint Nextel still expected to wring $12 billion in synergy savings from the new company, and he hoped to provide additional financial insight next month.
Sprint Nextel reportedly also will meld several popular calling features-including Sprint’s Fair & Flexible overage-protecting plans and Nextel’s free incoming calling plans-into new rate plans. Sprint Nextel also is expected to add in-network calling capabilities between Sprint and Nextel customers.
Analysts noted that the expanded calling base would be an important marketing tool for family-share plans as Sprint Nextel can claim more than 44 million customers across its network, compared with 51.5 million customers for Cingular and 47.3 million for Verizon Wireless.
West added that the carrier would launch a dual-mode CDMA/iDEN handset within a year that would allow customers to access Sprint’s CDMA voice and data network and Nextel’s iDEN-based Direct Connect services. The device is expected to be provided by Motorola.
Gillott expressed doubts about the need for a dual-mode device, noting there is little overlap between blue-collar iDEN users and white-collar CDMA users, and that the device quickly could become obsolete.
“I think the dual-mode device plans will be similar to Cingular’s GAIT plans,” Gillott added, referring to devices that included GSM, TDMA and analog capabilities that Cingular made plans to use when it was converting its network from TDMA to GSM technology. Cingular eventually offered only a handful of GAIT devices that proved less compelling than either TDMA or GSM devices and were quickly dropped.
Instead, Gillott said he expected Sprint Nextel would begin a slow migration of customers from Nextel’s iDEN network to Sprint’s CDMA network.
“I think in 12 to 18 months, we will see a shift at Sprint Nextel where more of the focus will be on the Sprint side of the business,” Gillott predicted.
Sprint Nextel’s Forsee also said the carrier would continue to refine its burgeoning mobile virtual network operator and reseller business, which serves nearly 5 million customers. A majority of those customers come from Sprint’s Virgin Mobile USA L.L.C. joint venture and Nextel’s fully owned Boost Mobile L.L.C. service.
Analysts have expressed concerns about the long-term future of continuing to work with both operations that target similar youth-oriented demographics with prepaid services.
“Even though they are going after the same basic audience, their positioning is different enough that I think they can both continue to operate side by side in the short term,” said Max Weise, principal at Adventis Corp. “But long term, I don’t think its optimal.”
Forsee also updated Sprint Nextel’s continuing efforts to work through its affiliate issues. Sprint still has several unhappy network partners that claim the new operation violates non-compete clauses of their affiliate agreements, while Nextel and its affiliate Nextel Partners Inc. are trying to hash out financial terms of a Sprint Nextel acquisition of Nextel Partners.
“There haven’t been any surprises,” Forsee said about Sprint and Nextel’s affiliate woes. “[The affiliates] were protecting their interests, and they have the right to do that.”
Forsee added that Sprint Nextel was looking at new affiliate agreements or possible affiliate acquisitions, and that he expected to have the issues worked through later this year.
Sprint Nextel announced last week that it intends to pursue the appraisal process under Nextel Partners “put” provision instead of moving forward with a negotiated acquisition.
Nextel Partners has said it would recommend its shareholders initiate the “put” option following Sprint’s acquisition of Nextel. The “put” option requires Nextel to purchase the 68 percent of Nextel Partners it does not already own at “fair market value” plus a “put premium.” Nextel Partners’ current market capitalization is around $7 billion.
If initiated, Nextel Partners’ “put” provision calls for both Sprint Nextel and Nextel Partners to appoint an appraiser to determine the “fair market value” for Nextel Partners’ stock. If the appraisals are more than 10 percent apart, a third appraiser will be appointed to set a final value. Sprint Nextel said the appraisal process could take at least four months to complete.
