Rumored Nextel, Sprint Merger Raises Unique Issues

The rumored merger between Nextel Communications and Sprint Corp. picked up steam Friday as the two firms reportedly attempted to sort out the challenges of merging infrastructure and spectrum allocations.

Sprint has said it would spend $3 billion over the next three years to develop a high-speed data network for Internet access indicating it has a clear strategy in hand to upgrade its mobile network with Qualcomm's EV-DO and CDMA technologies. Meanwhile, Nextel has been struggling to decide between Qualcomm's CDMA and an emerging data technology from Flarion Technologies.

"Nextel has to do a deal," said Joe Nordgaard, managing director of wireless consultancy Spectral Advantage. "They need new spectrum." Nextel, whose bandwidth primarily consists of a hodge-podge of bandwidth in spectrum also used by public safety users, is being forced to upgrade its radio spectrum.

Nextel, however, would bring some strong assets to a merger: it has a strong management team that has parlayed its service into the lowest subscriber turnover rate among the industry's major cellular providers and the highest profit rate per subscriber due largely to its unique "push to-call" service.

Telco observer Michael Voellinger, wireless vice president of Telwares, said a merger would represent "a huge win" for solving spectrum problems. The infrastructure while expensive would produce excellent synergy between the two firms representing the third largest provider (Sprint) and the fifth largest (Nextel), he said.

Voellinger views Sprint's "aggressive approach" to developing mobile data capability as a strong asset. (Sprint committed to EV-DO last spring.) A potential liability, he noted, could be Sprint's landline business, which represents about one-half of its business and would likely be spun off as it is in decline like other landline telephone offerings. Voellinger said it would take as long as two years to spin off Sprint's landline business.

Voellinger said Sprint has a strong management team, too, although Nextel's team has received the most public praise in recent months primarily due to the hefty rise in Nextel's stock in the past year.

Longtime CDMA advocate Nordgaard argued that Flash-OFDM is not ready for nationwide rollout. FCC's recent awarding of 10MHz in 1.9GHz spectrum would dovetail nicely with Sprint's EV-DO plans, he said.

Voellinger said the two firms have been talking on and off for years. It is a given in the wireless industry that the various players and investment bankers in the business are perpetually talking merger and acquisition.

Price is an issue, too, as the buzz on Wall Street has been of "a merger of equals" with each company's market value fluctuating almost hourly. Late Friday, Sprint's market value was around $37 billion with Nextel's around $32 billion.