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Sprint-Nextel Merger Would Narrow Wireless Market Gap
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NEW YORK (Dow Jones)--When Cingular Wireless recently completed its acquisition of AT&T Wireless Services, the U.S. cell-phone business looked increasingly like a clash of two titans, Cingular and Verizon Wireless.
Cingular leapt past Verizon Wireless to become the biggest carrier by subscribers, 47 million to 42 million, and both companies have aggressive plans to upgrade their wireless networks to support high-speed communications.
Now, Sprint Corp. (FON) and Nextel Communications Inc. (NXTL) are reportedly in merger talks to form what would be the third-largest U.S. wireless carrier. Sprint already is No. 3, but a merger with Nextel would bring it closer to Cingular and Verizon.
Following the Cingular-AT&T Wireless merger, Sprint was left far behind at roughly 23 million customers. Sprint, however, remains an aggressive competitor. This week, it said it will spend $3 billion to increase the speed and capacity of its network.
Also, Sprint runs a successful networking-leasing business that lets other companies, like Virgin Mobile USA and Qwest Communications International Inc. (Q), provide wireless service under their own brands.
Nextel is the No. 5 U.S. carrier and has a lucrative slate of business customers that spend more on service than the typical mobile user does. But it faces a quandary: its network uses a communications technology different from the rest of the U.S. carriers, and that network is showing its age. It doesn't support high-speed Internet access and video downloads, buzzwords in the industry today.
Nextel has left unanswered whether it will pick another unique technology, Flarion Technologies Inc.'s Flash-OFDM, or CDMA, the same technology used by Sprint and Verizon Wireless.
Sprint and Nextel would bulk up their subscriber roles by combining, sporting about 38.5 million customers, according to The Wall Street Journal. Nextel's next-generation network strategy would be solved: it'd become a CDMA carrier.
"That's probably the most rational approach" for Nextel to pursue, said Jane Zweig, chief executive of telecom consultancy Shosteck Group, based in Wheaton, Md.
Nextel picking CDMA and remaining independent, however, doesn't make much sense, Zweig adds. Her thinking is there would be nothing to differentiate Nextel's network from those of Sprint and Verizon Wireless.
"If I had to put a bet on why (Nextel is) considering CDMA, it's to make themselves more attractive to be sold," Zweig said.
If Nextel doesn't tie up with Sprint, it might make more sense for it to go with Flash-OFDM. "They've always been different," she said.
At a conference in New York Thursday, Nextel Chief Financial Officer Paul Saleh was asked about its testing of Flash-OFDM. He said Nextel had "learned a lot" from that trial, but he didn't give any indication that Nextel prefers Flarion's technology to CDMA.
Saleh declined to discuss the reports that Sprint and Nextel might wed, as did Sprint Chief Financial Officer Robert Dellinger, who also spoke at the Credit Suisse First Boston Corp. gathering.
-By Nick Baker, Dow Jones Newswires; 201-938-2020; nick.baker@dowjones.com
(Christine Nuzum contributed to this story.)
(END) Dow Jones Newswires"
Tags: [virgin mobile] [wall street journal] [dell] [qwest] [credit suisse] [boston] [virgin mobile usa] [at&t wireless] [qwest communications]
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