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August 31, 2005

Sprint Nextel buys affiliates to remove some legal hurdles

Sprint Nextel Corp, the third largest mobile provider in the US formed after the $36bn acquisition of Nextel Communications Inc by Sprint Corp, has now purchased two small mobile phone operators that sold the Sprint service, in order to end some of the litigation arising from the merger.

By CBR Staff Writer

The acquisition of Nextel by Sprint was completed in August, and the new entity has agreed to pay $219m and assume $208m of debt (or $427m in total) to acquire IWO Holdings Inc.

It also agreed to pay $212.5m and assume $75m worth of debt ($287.5m in total) to acquire privately-held Gulf Coast Wireless LP. Gulf Coast Wireless had sued over the Sprint-Nextel deal, and the acquisition means that all its litigation will now be stopped.

The purchases will add 332,000 subscribers to the newly merged company’s customer base of roughly 40 million mobile subscribers. Despite this huge customer base, Sprint Nextel still occupies the third spot in the US mobile market.

At the moment, the number-one US mobile operator is Cingular Wireless LLC, thanks to its $41bn acquisition of AT&T Wireless Service Inc back in February 2004. It recently reported that its customer base grew by 1.1 million during the last quarter, to a total of 51.6 million customers.

The second placed operator is Verizon Wireless, the joint venture between Verizon Communications and Vodafone Group Plc. It recently increased its subscriber base by 1.9 million customers to a total of 47.4 million.

Sprint has already paid $1.3bn for US Unwired in July, as the affiliate had sued to block the Sprint-Nextel deal. Sprint Nextel still has eight other affiliates remaining around the country and analysts expect that Sprint would be forced to pay as much as $12bn in order to buy them up.

Essentially, the problem has come about because Sprint used a number of affiliates across the US that sold a mobile phone service under the Sprint brand. The acquisition of Nextel threw up a number of legal challenges because Nextel offered service in parts of the country where Sprint had granted exclusive rights to some its own affiliates.

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The next likely acquisition for Sprint Nextel will be Nextel Partners Inc, which has the right to demand that it be bought out.

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