The deal is thought to be an all-stock deal that would combine the third placed and fifth placed mobile operators in the United States. It would leave the combined entity in third place in the US behind Cingular Wireless and Verizon Wireless. The combined company would be worth approximately $70 billion.
The advantage of the deal is that the combination would then have the scale to compete effectively with the market giants. It would have roughly 40 million subscribers, compared to the 47 million customers of Cingular and 42.1 million of Verizon.
However, some analysts have expressed concerns over the proposed deal, due to the different wireless technologies used in the two companies’ wireless networks. Nextel’s network is based on a proprietary technology called iDen. There is also a risk of potential management strife and control between fairly equally matched partners.
The Wall Street Journal said the deal would be worth more than $30 billion, and that the two companies have already settled management issues if a deal goes through.
A merger between the two could also trigger a fresh round of consolidation in the US mobile sector, which was rocked in February this year when Cingular eventually won a bidding war against Vodafone Group, and acquired the then number-three ranked US wireless operator, AT&T Wireless Service, for a staggering $41 billion, plus $6 billion in debt. This allowed it to leapfrog the then market leader Verizon.
A merger between Sprint and Nextel would tilt Sprint’s business predominantly toward wireless, away from its heritage as a local telephone company, a business that still accounts for over half of its revenues. Indeed, Overland Park, Kansas-based Sprint, began life as a local telephone company way back in 1899, and it also provides long-distance telephone and high-speed Internet services.
On the mobile side, Sprint has targeted the consumer mass market, such as families and teenagers, with its range of stylish phones and ‘cool’ ring tones. Nextel on the other hand caters to high-paying corporate customers, and has pioneered the ‘push-to-talk’ walkie-talkie style service on its Motorola-made handsets.
At the moment, all US mobile carriers are currently gearing up to launch 3G services, and the considerable investment involved could be another factor behind the proposed Sprint-Nextel talks. Nextel currently faces a $3 billion decision on what technology to use in upgrading its network.
The advantages of the deal for Sprint would be from adding Nextel’s 15.3 million subscribers, including the loyal following of business customers, to its own customer base of 23.2 million.
However, it remains to be seen whether the other US mobile players will enter the running. Verizon for example has made no secret of its desire to regain its top spot from Cingular, and could well decide to crash the party. The operator is said to be watching developments closely and has not ruled out making a move.
