"Where Sprint is strong, Nextel is weak and vice versa," said telecom industry analyst Jeff Kagan. "They just filled in the blanks with each other."
But a deal would require meshing two companies that have different cultures, technologies and reputations.
_____Cindy Webb's Filter_____
The Three Kings of Wireless: One way or the other, the U.S. wireless phone industry is headed for further consolidation. Reports yesterday that Nextel and Sprint are in merger talks had Wall Street swooning and consumer advocates worrying.
Nextel is known as a scrappy challenger to the big phone companies. Its subscriber base includes many business and government users who like its push-to-talk service, which connects callers instantly with the press of a button.
The company has developed the most loyal and profitable following in the cellular business. It generates an average of $69 per month in revenue from each customer, the highest rate in the industry.
Sprint, which got its start in 1899 as Brown Telephone Co., is perceived as a more traditional telephone company. In addition to its consumer-oriented wireless business, it draws nearly half its revenue from long-distance and local telephone services.
The Kansas company is investing between $2 billion and $3 billion to build a wireless network that would carry high-speed data. A merger would allow Nextel to avoid building its own at a similar cost.
The deal would be the second major merger in an industry enjoying explosive growth as the number of cell phone users increases, along with their demand for more and better services. In October, Cingular Wireless LLC acquired AT&T Wireless Services Inc. in a $41 billion deal.
The Sprint-Nextel combination would trail Cingular, which has more than 47 million customers, and Verizon Wireless, which has 42 million.
Regulatory issues are unlikely to pose major hurdles for a Sprint-Nextel deal, according to a source close to federal regulators.
Though a Sprint-Nextel merger would leave just four major competitors in the wireless industry, some analysts said that may not necessarily mean higher prices for consumers.
"We believe a potential combination could actually heighten competition in the sector by making a Nextel-Sprint combination more competitive, from a scale standpoint, with Cingular and Verizon Wireless," Michael Bowen, an analyst at Arlington investment bank Friedman, Billings, Ramsey Group Inc., wrote in a report yesterday.
One potential problem the companies would face is integrating the technologies used to make their wireless services work. Nextel's popular walkie-talkie system is relatively untested on the type of network Sprint uses. With a merger, Nextel customers may have to replace their handsets, which use the company's proprietary technology, if the new company adopts Sprint's advanced network.
A source familiar with the Sprint-Nextel talks said language calling a deal a "merger of equals" was important to ensure the deal would be treated as a tax-free transaction.
But such terminology can often fall by the wayside once deals like this are completed, analysts warned.
"They always say it's a merger of equals until it's over," said analyst Kagan.
The companies have relatively equal market capitalization -- $35.5 billion for Sprint and $33.1 billion for Nextel -- but Nextel is the more profitable of the two. The Reston company earned $1.54 billion on $10.82 billion in revenue in 2003, compared with Sprint's $1.29 billion profit on $26.2 billion in revenue for the year.
Shares of Nextel closed down 5 cents yesterday, at $29.76, while Sprint stock fell 14 cents, to $24.14.