Executives from Sprint Corp. and Nextel Communications Inc. took to a stage at the St. Regis Hotel in New York Wednesday to announce a definitive agreement to merge their two companies and create the third largest mobile phone company in the U.S.
Sprint Chief Executive Officer (CEO) Gary Forsee and Timothy Donahue, the CEO of Nextel, trumpeted the strength and promise of the new company, to be called Sprint Nextel. The merged company will have a combined equity value of approximately US$70 billion, more than 35 million wireless subscribers and a nettwork covering an area of almost 262 million people.
The merger will also result in the spinoff of Sprint's local phone business into a separate company.
Addressing an audience of investment industry insiders and media, Nextel's Donahue called the combined company the "future of communications," and said that joining his company to Sprint will create a new telecommunications powerhouse, with spectrum rights, product portfolios and distribution networks that will allow it to compete with companies such as Verizon Communications Inc. and Cingular Wireless LLC, which recently merged with AT&T Wireless Services Inc.
Forsee will take over as CEO of the combined company, with Donahue acting as executive chairman. Further underscoring the theme of a "merger of equals," the company will also maintain its operational headquarters in Overland Park, Kansas, current home to Sprint, and an executive headquarters in Nextel's home of Reston, Virginia, Donahue said.
With the staffs of the two companies observing the proceedings over a live Webcast, both executives paid homage to the hard work of employees of both companies. However, both Forsee and Donahue made it clear that staff reductions would be unavoidable as the companies combine their operations and networks following regulatory approval of the merger, which is expected in the first six months of 2005.
While he declined to discuss details of where cuts might come, Forsee said that the company will work to eliminate overlaps between the two organizations and that it wouldn't make sense to move "thousands of employees" between Kansas and Reston, or Reston and Kansas.
According to Forsee, 22,000 employees who work with Sprint's local phone business will leave the merged company to work for that newly created entity.
Sprint Nextel also expects to realize huge savings by consolidating information technology as well as sales, marketing and administrative organizations. It will also try to extract better deals from suppliers by leveraging the company's increased size, Forsee said.
Total savings to the company through those "synergies" could total $12 billion, the executives said.
Executives from both companies spoke enthusiastically about the opportunities created by combining the two companies, especially with Nextel's strength in innovative voice services, like the popular "push to talk" feature, and Sprint's strength in Internet and data services.
Following regulatory approval, the combined company will begin to merge the companies' networks, looking for collocation opportunities where they exist, and making sure that Nextel customers can receive service from Sprint's cell network, and vice versa, Forsee said.
A longer-term project will be migrating Nextel customers and the two-way radio "push to talk" feature from the company's network, which uses Motorola Inc.'s iDEN (Integrated Digital Enhanced Network), to Sprint's network, which uses CDMA (Code Division Multiple Access) technology, the executives said.
Sprint Nextel will continue to invest in and grow its iDEN network through 2007, and is looking at opportunities to market it to governments and public safety organizations, which make heavy use of the "push-to-talk" capability, Donahue said.
In the short term, the companies are working with Motorola to offer their customers a dual-mode phone that supports both iDEN push-to-talk and CDMA, Donahue said.
Sprint will work aggressively with federal and state regulators to win approval for the spinoff of its local telecom business and to make sure that the new company has the cash and capital resources to be successful, Forsee said.
The new company will be the largest local phone company in the country, with 7.7 million local access lines in 18 states, he said.
Sprint expects approval for local phone spinoff to take longer than approval for the merger, but hopes to win approval for the plan in nine months to one year, Forsee said.
Jeff Kagan, a telecom industry analyst said, "This is good news for the wireless industry."
"This creates three big wireless competitors carrying about 75 percent of the traffic, which is very helpful," Kagan said. "Three major carriers can help keep prices low for customers, expenses lower for the companies and innovation high. The wireless industry needed this wave of consolidation."
Like the merger of Cingular and AT&T Wireless, the joining of Sprint and Nextel is an example of the need for consolidation in the wireless industry, as companies try to resolve network bottlenecks and gear up to spend billions of dollars on network upgrades, such as Sprint's ongoing effort to upgrade its PCS wireless network with the high-capacity EV-DO technology, Kagan said.
"Since the mergers will happen before they spend the money, they will save significantly," he said. "In some cases they will have more capacity, and in other cases they will only have to spend once, not twice. It should help the merged company save quite a bit of money."