The planned merger of Sprint Corp. and Nextel Communications Inc. would bring together not only two of the largest U.S. mobile phone operators but also two different networks and corporate cultures, according to industry analysts. Possibly more important in time, the merged company would hold most of a chunk of radio frequencies that could play a big role in wireless broadband services.
The companies announced Wednesday they will merge into Sprint Nextel, a mobile operator worth about US$70 billion with more than 35 million subscribers. Its service area will cover almost 262 million people, more U.S. residents than any other operator, they said. The merger is expected to close in the first half of next year.
Together, Sprint and Nextel may become a formidable competitor to number one Cingular Wireless LLC, itself the product of a recent merger. But Sprint Nextel has its own challenges to go along with unique assets. Chief among them will be running two networks side by side and eventually phasing out Nextel's current iDEN (Integrated Digital Enhanced Network) infrastructure.
The merger also creates an asset that could not have been duplicated by any other mobile operator deal. Together, Sprint and Nextel hold nearly all the U.S. licenses for a spectrum band at 2.5GHz called MMDS (Multi-Multipoint Distribution Service). Sprint several years ago abandoned a home broadband service using that spectrum, but since then new technologies have emerged. Among them are a system from Flarion Technologies Inc. that Nextel has rolled out in Raleigh, North Carolina, and WiMax, based on the IEEE 802.16 standard, which Sprint is studying, according to spokesman Bill White.
The first generation of standards-based WiMax, for which equipment will ship in volume starting next year, could provide wireless broadband services comparable to DSL (digital subscriber line) and cable services. A more advanced WiMax, and the current version of Flarion's technology, could deliver high-speed mobile access. Intel Corp. and several other hardware vendors see WiMax as a strong contender for broadband delivery. Intel and wireless service provider ClearWire Corp. plan to use MMDS spectrum in some markets for commercial mobile WiMax services.
"This is the spectrum band that, I think, becomes a battleground for WiMax," said Bob Egan, president of Mobile Competency, a consulting company in North Providence, Rhode Island. Other countries also are planning to use the band for high-speed wireless, opening up the possibility of selling customers a service they could use while traveling.
According to Sprint and Nextel, the merged carrier would own MMDS licenses covering 85 percent of the households in the top 100 U.S. markets. They could use that spectrum to roll out WiMax services without having to find spectrum elsewhere, as other carriers might.
Unlike the Cingular deal, which was between two operators based on the GSM (Global System for Mobile Communications) family of technologies, this merger starts with two totally different network infrastructures. Sprint uses CDMA (Code Division Multiple Access), one of the two main cellular systems in the U.S., while Nextel's network is built with Motorola Inc.'s iDEN. The iDEN network doesn't deliver the high speeds of the next generation of CDMA, called EV-DO, (Evolution-Data Only), which will be needed for advanced services such as video and some enterprise applications, so Nextel has been looking for a path to a new technology, Egan said.
Merging with Sprint gives Nextel a way to offer CDMA service soon -- over Sprint's network -- without having immediately to convert the iDEN infrastructure at great cost, Egan said. The carriers estimate savings on capital investment and operating costs to total $12 billion. But the transition may be lengthy and disruptive.
"You're talking about at least five years for a dual iDEN-CDMA network," said Eddie Hold, an analyst at Current Analysis, in Sterling, Virginia. That could kill potential cost savings, and Nextel might have a hard time selling new, dual-mode handsets to small businesses before their iDEN phones are fully depreciated, he said. Sprint Nextel would continue operating the iDEN network until at least 2007, according to Nextel spokeswoman Audrey Schaefer.
The iDEN technology should bring at least one major asset to Sprint Nextel. One area where iDEN excels is push-to-talk, the "walkie-talkie" service that Nextel pioneered to great success and which other operators, including Sprint, have begun to offer on other types of networks. The companies plan to migrate Nextel's push-to-talk services to Sprint's next-generation EV-DO network. They are likely to retain an edge over other mobile operators because of QChat, the CDMA push-to-talk technology Nextel developed with Qualcomm Inc., Egan said. That technology seems to be better than what other operators are using, and Nextel has the exclusive right to use it, he said.
IDEN is a legacy of Nextel's history as an upstart mobile operator that cobbled together its network and cultivated customers in various vertical industries. The maverick culture that resulted may be a hard fit with Sprint, a huge, long-established carrier with local, long-distance and wireless operations, analysts said. Possibly to address these issues, the companies plan to mix leaders from both sides in the new entity's top ranks and maintain operations in both Nextel's Reston, Virginia headquarters and Sprint's Kansas City, Missouri, base.
Sprint's need to make its long-distance operations work with its mobile business, while spinning off its local wireline business in the wake of the merger, is likely to make things even harder, Current Analysis' Hold said.
"They haven't been able to consolidate themselves internally," let alone with another company, Hold said.
Sprint Nextel's sheer size should be good news for customers, however, analysts say.
With Nextel entrenched in small businesses and blue-collar business units, and Sprint dominant in corporate and consumer accounts, the combined company would have the broadest customer base of any operator in the country, according to Egan. For Nextel customers, it could offer wireline data and voice services along with cellular service through one account manager, he added.
"The stronger the company, the more it can marshal resources to build whatever it is seeking to build," said IDC analyst Shiv Bakhshi. And though migrating the two networks to a faster technology such as EV-DO might take a few years, in the real world, the timing might be perfect, in Bakhshi's view. It will be a few years before the market for high-speed mobile data services really takes off, and any next generation network that the merged company might roll out would be just in time to compete with a new HSDPA (High Speed Downlink Packet Access) network expected from Cingular, he said.