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Merger Puts Nextel at Crossroads

Timothy M. Donahue, who took over as chief executive after Akerson gave up the title in 1999, will probably become Sprint-Nextel's executive chairman. The new company's corporate headquarters would be in Reston, and it would have an operational headquarters in Kansas, according to sources familiar with the deal.

Nextel's wireless network was cobbled together with walkie-talkie licenses purchased from taxicab dispatch operators. The company, founded in 1987, targeted blue-collar enterprises with workers in disparate locations, such as construction companies, and built up a profitable niche in the market.

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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
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Sprint, Nextel Announce Merger Plans (The Washington Post, Dec 15, 2004)
Nextel Story Archive
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The technology failed in its first run, and the company was on the brink of bankruptcy when telecom pioneer Craig O. McCaw and his family pumped $1.1 billion into the firm and recruited Akerson and Donahue to lead the venture.

"It was like going out on a submarine on its maiden voyage. You know it's going in the deep waters, and you just hope it's going to work out," Akerson recalled.

It did work out, and last year, Nextel earned $1.54 billion on $10.82 billion in revenue.

But the technology it uses to operate its system, called IDEN, is unlike that of any other wireless company. And while IDEN fueled Nextel's early growth, it now ties the hands of the Reston firm because it can't deliver high speed services.

"Nextel has to have a data product. They've got to have a broadband product. In the longer term, they've got to be able to do things tomorrow that they can't do today," said Blair Levin, a telecom analyst with Legg Mason Wood Walker, which owns stock in the company.

To compete on its own, Nextel would either have to build a high-speed network, a venture that could cost $2 billion to $3 billion, or try to implement technology being developed by a relatively unknown New Jersey company called Flarion Technologies Inc. Both choices would be time consuming and costly, analysts say.

If Nextel merges with Sprint, it will be able to share the high-speed network already being built by the Overland Park, Kan., company. "Sprint is a perfect exit strategy for them as the market growth slows," said Scott C. Cleland, chief executive of the Precursor Group, a market research firm.

But there would be technical challenges, like developing a push-to-talk system that would work on the high-speed network. Current Nextel customers would probably need new phones, according to analysts.

How much of Nextel's distinctive personality as a quirky challenger would survive at a merged company of 80,000 workers is also a question mark. But, as Akerson notes, no company can be an upstart forever.

"I think it's a good marriage. I'm a shareholder, and I like it," he said.

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