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Nice Day for a Wireless Wedding

By Cynthia L. Webb
washingtonpost.com Staff Writer
Wednesday, December 15, 2004; 10:10 AM

The courtship was public, and now they're engaged. Even though we knew it was coming, journalists seem to have plenty to write about now that underdogs Sprint and Nextel have announced their $35 billion nuptial plans, including a rumor that one of the wireless industry's big dogs would try to spoil the party.

Despite reports in the Wall Street Journal, picked up by other news outlets yesterday, that No. 2 carrier Verizon was poised to derail the deal, Sprint Corp. and Nextel Communications Inc. announced their merger plans this morning. "The deal, which was widely expected, would combine the No. 3 and No. 5 U.S. wireless carriers and create a new wireless giant with about 40 million customers, greatly narrowing the gap with industry leaders Cingular Wireless and Verizon Wireless," Reuters explained.

_____Live Online_____
Washington Post columnist Steven Pearlstein was online earlier today to talk about the Sprint-Nextel deal and its implications for competition in the wireless phone industry.
Pearlstein Column: Telecom Merger Might Be What Consumers Need
_____Related Coverage_____
Sprint, Nextel Announce Merger Plans (The Washington Post, Dec 15, 2004)
Merger Puts Nextel at Crossroads (The Washington Post, Dec 15, 2004)
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The Washington Post's coverage took a swipe at the Journal's spoiler report: "Analysts said that while a merger was not essential for Verizon, it was crucial for both Sprint and Nextel. Sprint is bigger but less profitable than Nextel and is eager to sign up Nextel's higher-paying business customers, who like the company's push-to-talk service, which instantly connects callers at the touch of a button. If Nextel stood alone, it would need to build a new advanced wireless network, which could cost the company $2 billion to $3 billion. In a merger it could share the network that Sprint is already building at a similar cost."
Reuters via washingtonpost.com: Sprint to Buy Nextel in $35 Bln Deal (Registration required)
The Washington Post: Sprint, Nextel Announce Merger Plans (Registration required)

Post columnist Steve Pearlstein was among the few scribes this morning spelling out what the deal means for consumers. He argued that the new cellular marriage is actually something positive for consumers, who face little choice when it comes to the Baby Bell cell companies: "It tells you something about the state of competition in the telecom sector -- or the lack of it -- that consumers should cheer the widely expected merger between the No. 3 and the No. 5 wireless companies. It's not just that the new Sprint-Nextel will, in the long run, add critical mass to the economically important telecom cluster here in Washington, even if the company makes the initial mistake of locating too much of its operations in Sprint's hometown of Overland, Kan., rather than in Reston. More important, Sprint-Nextel would provide a strong and independent competitor to the local cable and phone companies that are desperately trying to leverage their existing monopolies to lock themselves in as your one-stop supplier of basic telephone, wireless, Internet and cable television service."

Pearlstein also contends that the deal offers an alternative to the services of Verizon (partnered with Vodafone) and SBC and BellSouth's new Cingular-AT&T combo. "These captive wireless companies can hardly be expected to offer a complete bundle of telecom services in competition with the Baby Bells that own them. And up to now, there has been a gentleman's truce among the Bells that allows them to compete for wireless customers but shy away from trying to poach on each other's local and long-distance customers. Which brings us back to Sprint-Nextel. The merged company would be the only independent wireless provider with the scale, scope, technology and management heft to give the cable and telephone monopolists a run for their money," wrote Pearlstein, who will be online today to talk about his column.
The Washington Post: Telecom Merger Might Be What Consumers Need (Registration required)

Nextel's loyal following of business customers was surely a major part of the allure for Sprint. USA Today explained that the deal would "complete Sprint's transformation from a long-distance also-ran into a major wireless player." Nextel "caters mostly to small businesses, making it a nice complement for Sprint, which has many large business customers," the paper said. "Sprint would get access to Nextel's large base of business customers as a result of the deal while Nextel would get an opportunity to expand faster as it was approaching a decision on a big investment in upgrading its network infrastructure," the Associated Press said.
USA Today: Sprint-Nextel Combo May Come Soon

Another Post piece also noted the No. 5 wireless company's "walkie-talkie technology, which allows users to talk to each other with the push of a button, has helped it develop a loyal and lucrative following of business users. It has the highest average revenue per customer and one of the lowest customer turnover rates in the industry." And more on why finding a partner was crucial to offer consumers more services: Nextel's "technology can't handle high-speed data functions that consumers increasingly demand. It can't offer customers a package of communications services that might simplify their lives and bill drawers. And Nextel, which has 15.3 million wireless customers, will have to compete with the resources of industry giants Cingular Wireless LLC, which has 47 million customers, and Verizon Wireless, which has 42 million."
The Washington Post: Merger Puts Nextel at Crossroads (Registration required)
The Associated Press via washingtonpost.com: Sprint, Nextel to Merge in $35 B Deal (Registration required)

For wireless players, being little is a hardship, which is why companies are jockeying to find partners to beef up their operations, according to USA Today. "Dan Hesse, former CEO of AT&T Wireless, thinks Sprint and Nextel are just girding for the inevitable. 'What this [merger] indicates to me is that scale is crucial to play in the U.S. market,' he says." The Sprint-Nextel combo still faces an uphill race to snatch its bigger rivals' coattails. BusinessWeek declared in its coverage that "Nextel and Sprint shouldn't be all that threatening. ... [They] are two midsize players rushing to catch up with their bigger rivals."

The magazine noted that Deutsche Telekom's T-Mobile (the industry's No. 4) and regional independents will feel the most heat from the deal, but not the top two: "The merger could force Verizon and Cingular to continually reevaluate their positions in a changed competitive landscape. But the deal isn't an industry-transforming event -- and hardly reason for panic among the giants. Verizon and Cingular aren't desperate for spectrum space. As their needs grow, they'll have plenty of opportunity to buy more bandwidth in federal auctions, which are set to begin in January and continue over the next two years. The sales will double the amount of spectrum on the market, and prices aren't expected to soar the way they did during the auctions of the 1990s. The biggest winner in the deal is Nextel. Its management has done a great job of competing, but now it needs to upgrade its network so it can offer higher-speed mobile Internet access and services."
BusinessWeek: Nextel and Sprint: The Big, Little Guy

Nuts and Bolts

The Wall Street Journal said the deal "would create a U.S. cellular giant with roughly 38.5 million subscribers and a combined equity value of $70 billion," with an even-split value for both Nextel and Sprint. "The deal is expected to close within six to nine months and face little regulatory opposition," the paper said. "The companies have tried to blend their management teams in what they are calling a merger of equals, though Sprint technically is buying Nextel."
The Wall Street Journal: Sprint and Nextel Unveil a $35 Billion Competition (Subscription required)

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