Sprint and Nextel execs took to the stage at a New York hotel yesterday to announce a definitive merger between the two giants that will create the third-largest mobile phone company in the US.
Sprint CEO Gary Forsee and Timothy Donahue, the CEO of Nextel, trumpeted the strength and promise of the new company, to be called, er, Sprint Nextel. The merged company will have a combined equity value of approximately $70 billion, more than 35 million wireless subscribers and a nettwork covering an area of almost 262 million people. It will also result in the spin-off of Sprint's local phone business into a separate company.
Addressing the audience, 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 and Cingular, which recently merged with AT&T Wireless.
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 Virginia, current home to Nextel, and an executive headquarters in Sprint's home of Kansas.
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 organisations 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 make huge savings by consolidating IT as well as sales, marketing and administrative arms. It will also try to extract better deals from suppliers by using the company's increased size, Forsee said. Total savings to the company through those "synergies" could total $12 billion, the execs 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's iDEN (Integrated Digital Enhanced Network), to Sprint's network, which uses CDMA (Code Division Multiple Access) technology.
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 organisations, 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 and CDMA, Donahue 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.
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."
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