Anatomy of a Merger: Sprint Nextel

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favouring one company’s structure will provide an inevitable source of resentment.

The fact that the Sprint name comes before that of Nextel is understandable given which company effected the takeover. However, when names are juxtaposed it is bound to sow confusion in the minds of subscribers so there is some logic in continuing to use the existing brand names in existing markets. On the other hand, having a single brand can yield huge marketing economies, and if only one is to be used it should logically be that of the buyer. Not surprisingly, Sprint initially preferred the latter option, relegating the Nextel name to a subsidiary role. Predictably, given the different markets served by the two operators, Nextel customers were unimpressed and Sprint was forced to change tack, with recent advertisements adopting a “Nextel from Sprint” approach.

With these unsettling internal problems constantly on the boil, Sprint Nextel hardly needed outside distractions. However, as noted above, both Sprint and Nextel were hounded by their former affiliates who argued that the new company breached the terms of existing agreements. In the end, the preferred solution was to buy out most of them at inflated prices, although residual disputes still rumble on. Another distraction came in the form of the FCC condition placed on the takeover that Sprint Nextel should begin offering services in the 2.5GHz band to at least 15 million US citizens by 2009 or risk losing the rights to the spectrum. Since it now wishes to go nationwide with services in this band, it must acquire spectrum in places where it would otherwise have no coverage. More significantly, perhaps, Sprint Nextel has been embroiled in long-standing issues to do with attempts to trade spectrum owned by the former Nextel in the 850 MHz band, which was interfering with emergency services” communications, with spectrum in the 1,900 MHz band.

However, it would not be so bad if these were merely managerial distractions. Unfortunately, switching spectrum tends to lead to a deterioration in network performance in some areas, and a loss of consumer confidence. Although the simple answer is to switch Nextel customers over to Sprint’s 1,900 MHz network wherever possible, this does not yet function with a walkie-talkie service. Dealing with this is likely to delay the creation of a unified service in a single spectrum band and to bump up costs, not least because the only short-term patch is to introduce dual-mode handsets.

Naturally, all is not doom and gloom. Surplus managers are being made redundant and overlapping retail outlets are being closed. However, if you promise to make savings to the tune of $14.5 billion – even if you are careful not to promise to make them quickly – you cannot expect investors to stay faithful if even the first billion is hard to come by. The plan, if such it can be called, is now – post-Embarq – to concentrate upon wireless strategy, to introduce ever-speedier versions of cdma2000 – the latest is EV-DO version “A” – and to roll out the 2.5 GHz network using WiMAX. Not surprisingly, the other wireless operators are also intent on speeding up their own networks using EV-DO and HSDPA as appropriate, although their WiMAX strategies are far weaker.

So it may turn out well in the end, but the end is not nigh and all the pious words spoken as the takeover was signed and sealed have so far, and yet again, proved to contain a lot of hot air. The US telecommunications sector may have been ripe for restructuring, but it is not always a good idea to jump on a bandwagon when the best seats have already been occupied. Since T-Mobile has – so far – chosen to remain a spinster at he ball, it will be illuminating to chart its progress compared to that of Sprint Nextel over the coming year.

Peter CurwenVisiting Professor of Telecommunications in the Department of Management Science, Strathclyde University, Glasgow, UK. E-mail pjcurwen@hotmail.com