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The Three Kings of Wireless

By Cynthia L. Webb
washingtonpost.com Staff Writer
Friday, December 10, 2004; 10:34 AM

For the wireless phone industry, 2004 has already been the year of consolidation, with Cingular Wireless buying AT&T Wireless back in October, creating the nation's largest wireless company.

But news of another wireless deal began buzzing across the newswires yesterday -- reports that Sprint and Nextel are talking about a marriage of equals.

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If a Sprint-Nextel merger goes through, the new company would become the nation's third-largest cell phone company. The Wall Street Journal broke the story yesterday, and in a front-page piece today the newspaper noted that such a deal would net 38.5 million customers, "narrowing the U.S. cellular industry into a business dominated by three giants. Cingular Wireless, Verizon Wireless and a combined Sprint-Nextel would control about 75% of the market, though a host of other entrants also compete."

The Journal and its sources hedged their bets, however, in case a deal does not fly, and -- most interestingly -- suggested that Verizon could enter the mix: "Discussions between Sprint and Nextel are ongoing, these people say. There's no certainty a deal is completed, they add, and like all discussions they could fall apart over issues both large and small. Verizon Wireless could also enter the fray. The country's second biggest wireless operator uses the same cellular technology as Sprint, and has long had a sporadic interest in the carrier." The Washington Post added its own hedge to the merger talks: "It was not clear how far the talks had progressed, and some analysts questioned whether a deal combining Nextel, the nation's fifth-largest mobile phone carrier, and Sprint, the third-largest, would be made."
The Wall Street Journal: Sprint and Nextel Suggest Merging As Cellular Giant (Subscription required)
The Washington Post: Nextel, Sprint Talk Merger (Registration required)

The New York Times reported more on the Verizon angle: "A deal could be reached as early as next week if the talks continue apace. In the meantime, the talks may bring to the game a third player, Verizon Wireless, which held several internal conference calls yesterday to discuss the possibility of making a run at Sprint, executives close to Verizon Wireless said. Whatever the outcome, the industry appears ready to shrink once again, just six weeks after Cingular's acquisition of AT&T Wireless formed the largest mobile phone provider in the country with 46 million subscribers, surpassing Verizon Wireless with 42 million. The talks between Sprint, currently No. 3 in the market, and Nextel, No. 5, are also in part a response to Cingular's move, which forced other rivals to reconsider their competitive positions."
The New York Times: Nextel Said To Be In Talks With Sprint (Registration required)

The Financial Times hinted that U.K.-based Vodafone could become a player, noting the company had been a bidder for AT&T Wireless earlier this year. "For the moment," the FT said, "both Vodafone and Verizon, the biggest US telecoms group, continue to insist that they are happy with their Verizon Wireless partnership. Nevertheless, Verizon has made no secret of its desire to increase its 55 per cent stake in Verizon Wireless - something that seems likely only if Vodafone were to find Sprint, Nextel or Deutsche Telekom's T-Mobile USA unit attractive."
The Financial Times: Sprint-Nextel Talks Point To More Sector Consolidation

Even though Sprint and Nextel have been mum so far on the reports, one Sprint executive played it cool yesterday at a Wall Street analyst conference. Sprint chief financial officer Bob Dellinger "brushed aside speculation about a Sprint-Nextel match," the Kansas City Star reported. "Like everybody else, we do continue to evaluate our strategic opportunities," Dellinger said, responding to a question. "That's appropriate for all businesses, and we continue to do that. I'm going to leave it at that," he said.
The Kansas City Star: Merger Speculation Boosts Sprint Stock

Wall Street swooned over the Sprint-Nextel rumors yesterday, boosting the price of Sprint and Nextel shares. "Representatives from Sprint and Nextel declined to comment yesterday, but the stock and bond markets appeared to approve of the potential deal, which will almost definitely be an all-stock transaction. Yesterday, shares in Sprint and Nextel traded in high volumes after The Wall Street Journal reported merger speculation. As of 4 p.m., Nextel shares rose $1.84, or 6.6%, to $29.81 on the Nasdaq Stock Market. Sprint shares rose $1.78, or nearly 8%, to $24.28 as of 4 p.m. in New York Stock Exchange composite trading," the Journal reported.

From Rags to Riches

A separate article in the Financial Times reminded readers how far Nextel has climbed in recent years: "If Nextel can pull off a merger with Sprint, it would crown its recovery from the dark days of 2002 when its shares dipped below $3 -- compared with $30 on Thursday. It would also fill important gaps for both mobile operators. Nextel, the fifth largest US mobile operator, faces a $3bn decision on what technology to use in upgrading its network. A deal with Sprint would mitigate that cost. It would also provide extra spectrum and release big cost saving opportunities from overlapping areas such as billing. Sprint, meanwhile, would get its share of the cost synergies. It would also get access to Nextel's loyal and highly profitable business customer base and its popular 'push-to-talk' expertise."
The Financial Times: Lex: Nextel/Sprint

"Analysts were split on the feasibility of such a merger, considering that the companies have similar market values of more than $30 billion. Saying that combining the two management teams would be 'like trying to mix oil and water,' analysts with Goldman Sachs said in a research note that the deal would be tough for one side in particular to negotiate," CBS MarketWatch reported. More from the article: "Nextel would have more to gain than Sprint -- because Nextel would avoid having to build out a new data network and would have instant access to a broader market -- which would likely put Sprint in a better bargaining position, the analysts said. 'This is our source of skepticism that such a deal can get done in the near term,' they wrote."
CBS MarketWatch: Sprint, Nextel Gain On Merger Reports

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