Sprint's 2005 merger with Nextel Communications and market position

Sprint Nextel Merger

History of Sprint

Sprint Corporation's history started in 1899, when its founder, Cleyson Brown, founded the Brown Telephone Company in Abilene, Kansas (Sprint Nextel, 2007). In 1972 the company's name was changed into United Telecommunications. The company acquired GTE Sprint in 1986, and started to be referred to as Sprint (Wikipedia, 2007). Although most telecommunications resources state that Sprint stands for Southern Pacific Railway Internal Network for Telecommunications, it seems that the real provenience of the name is: Switched Private Network Telecommunications.

The first six metropolitan areas to benefit from Sprint services were: New York, Boston, Philadelphia, Los Angeles, San Diego, and Anaheim. In 1986, Sprint merged with U.S. Telecom, forming U.S. Sprint. Later, in 1991, the newly formed U.S. Sprint was finally acquired by United Telecom, changing the company's name to Sprint.

In 1999 Sprint was supposed to merge with MCI WorldCom in a $129 billion between the two companies. Because of the U.S. Department of Justice and European Union's pressure and concerns of the new company creating a monopoly, eventually the merger was terminated by the Board of Directors of both companies involved.

Even before merging with Nextel Corporation, Sprint was one of the largest telecommunications companies in the world. Sprint was one of the most important competitors in the American cellular phone market. In addition to this, Sprint Corporation was also providing local telephone services for certain smaller markets. Sprint was also a Tier 1 Internet service provider through SprintLink.

Sprint's success is also due to the company's collaboration with affiliates. These affiliates were smaller companies that together with Sprint Corporation were engaged into building network infrastructure and operating retail stores. For this collaboration, Sprint allowed these companies to use its brand, radio spectrum, customer service and billing (Wikipedia, 2007). The most important affiliates for Sprint were: Alamosa PCS, Ubiquitel, iPCS, Shentel Enterprise, Gulf Coast Wireless, Northern PCS, Swiftel, and IWO. In 2005, for $1.3 billion, Sprint acquired U.S. Unwired, one of its affiliates.

In 2003, Sprint Corporation went through some marketing changes, recombining the company's business units: LTD (local telecom), Global Markets Group (long distance/wireline), and PCS (wireless). These business units were combined into a new company that was afterwards marketed as One Sprint. Given the merger with Nextel, Sprint decided to separate its wireline business to a separate company, but maintained the long distance and wireless business units into the company formed together with Nextel.

Sprint's partnership with RadioShack started in 1996. Later, in 1997, Sprint Stores started to offer their portfolio communications services and products through RadioShack stores across the United States. The partnership has proven to be very successful for Sprint Corporation, since the company sold over 20 million Sprint cellular phones through RadioShack stores.

In 2005 Sprint Corporation merged with Nextel Communications, becoming the third largest wireless telecommunications network operator in the United States. However, the newly formed company is still referred to as Sprint. The total cost of the merger between Sprint and Nextel was estimated at $35 billion. For its activity, the company has received several awards from Advertising Age, Forbes Magazine, Treasury & Risk Management Magazine, and others.

History of Nextel

Nextel Communications was founded in 1987 by Morgan E. O'Brian, a telecommunication lawyer, under the name of FleetCall. In 1993 the company changed its name into Nextel Communications (Wikipedia, 2007). After this, "in less than year's time, Nextel merged with Dial Call and OneComm, acquired all of Motorola's SMR licenses in the U.S., and received a $1 billion investment from wireless pioneer Craig McCaw. By mid-1995, Nextel was on point to serve all of the nation's top 50 markets" (Sprint Nextel, 2007). Initially, Nextel's business model was based on buying fleet dispatch frequencies at significant discount compared to the same bandwidth in established FCC designated frequencies for wireless telephone service.

From that moment on, Nextel started proving its innovation capability constantly. In September 1996, Nextel introduced Motorola's breakthrough iDEN technology. This was the first combination of enhanced digital cellular, two-way radio and text/numeric paging in one phone. As a consequence, in 1997 the Nextel National Network was introduced.

Nextel Communications' success is due to the company's innovative mobile communications system. Nextel used a Specialized Mobile Radio band (SMR) that was not used by other cellular operators. This way, Nextel became one of the first United States operators to offer a national digital cellular coverage footprint.

History of Sprint Nextel merger

Sprint Corporation and Nextel Communications first announced their intention to merge on December 2004. The newly formed corporation was names Sprint Nextel Corporation. The deal was considered to be a merger between two equal companies, but in reality the transaction actually consisted in Sprint Corporation purchasing Nextel Communications (Wikipedia, 2007). As a consequence, the newly formed corporation is referred to as Sprint. At the time the merger was announced, Sprint Corporation was rated no. 3 among leading providers in the United States mobile phone industry, while Nextel Communications was rated no. 5.

The merger was officially approved by Sprint shareholders in July 2005. The official merger deal was approved in August 2005 by the Federal Communications Commission (FCC) and the U.S. Department of Justice. However, the merger was conditioned by the FCC: Sprint Nextel Corporation had to provide wireless service within the 2.5 GHz band for the following four years. Finally, the deal was completed on August 12, 2005, when Sprint Nextel Corporation was officially formed.

However, the new merger between the two giants on the U.S. mobile phone market was not welcomed by everyone directly or indirectly affected by the new situation. Therefore, most of these two companies' regional affiliates that provided wireless services on behalf Sprint and Nextel took an opposite position to the merger. The regional affiliates' motivation for their opposition was the fact that they considered the newly formed company was breaking non-compete agreements between the former Sprint and Nextel and the affiliates.

After the merger was completed, there were changes on both sides. Both Sprint's and Nextel's former business systems changed in order to ensure the new company's well-functioning. Therefore, although Nextel was famous for its former free incoming call plan, Nextel's clients have the opportunity to convert their plans to the Sprint side, while Sprint's clients have the opportunity to convert their accounts to the Nextel side. These modifications that were made by both sides were not possible without acquiring new phone equipment, that increased total costs and changed the human resources planning and time scheduling. A new aspect that was brought by the merger of the two companies was the fact that "Sprint Nextel may buy back fairly new but used cell phones for up to $50" (Wikipedia, 2007).

The merger required that both companies modify their structure. As a consequence, certain aspects had to be abandoned by each company, certain new aspects had to be included in both companies, while other aspects had to become common for both companies. Therefore, several features from each company had to be incorporated into the other. For example, after the merger Sprint started to offer its clients free incoming plans, while Nextel started offering fair and flexible plans for a period of time. One of the common aspects for both Sprint and Nextel is the fact that they replaced the plans mentioned before with the newer Power Pack plans. These changes consequently reflected in the modifications of he overage fees to a set per minute charge that ranged between $0.25 and $0.45. Sprint was somehow forced to make these changes because of the agitation among its clients that needed to be reduced. This agitation state among the company's clients was due to similar, almost identical, plans offered by the company's competitors. In addition to this, Sprint was forced into applying certain marketing strategies that were not used before by the former Sprint and Nextel. For example, Sprint Nextel offered certain discounts to clients' whose initial contract obligations had expired in exchange of signing new contracts for two years.

Current state of the company

Currently, Sprint Nextel Corporation is one of the most important telecommunications companies in the world. The company has now reached an impressive number of approximately 53.7 million subscribers. Also, Sprint Nextel is the proud operator of the third largest wireless telecommunications network in the United States. The first places are taken by Verizon Wireless and at & T, which are Sprint Nextel's most important competitors currently. These competitors determined Sprint Nextel to change its marketing strategy and customer relationship approach, in order to face such tough competition. Basically, Sprint Nextel Corporation currently provides cellular phone services, and landline, long distance, and business telecommunications. Also, Sprint Nextel now provides pre-paid services due to its Boost Mobile brand, and it provides this kind of services also in the Philippines through its Next Mobile brand.

Also, Sprint Nextel is a worldwide Tier 1 Internet carrier and makes up a portion of the Internet backbone (Wikipedia, 2007). The company's success is also proven by the fact that Sprint Nextel is the operator of the largest wireless broadband network in the United States and is the third largest long distance provider.

Sprint Nextel's executive headquarters are located in Reston, Virginia, but the company's operational and engineering headquarters are located in Overland Park, Kansas. The Kansas headquarters engage the largest number of Sprint Nextel's employees. Although when the merger took place the two former companies, Sprint and Nextel, were considered to be equals, Sprint had much more power over Nextel, therefore this merger can be considered an acquisition under certain circumstances. As a consequence, although the newly formed corporation is officially named Sprint Nextel Corporation, it is shortly referred to as Sprint, both on internal level and international one.

Sprint Nextel's activity is very diverse, as the company offers a "comprehensive range of wireless and wireline communications services bringing the freedom of mobility to consumers, businesses and government users. Sprint Nextel is widely recognized for developing, engineering, and deploying innovative technologies, including two robust wireless networks serving 53.6 million customers at the end of the first quarter 2007" (Sprint Nextel, 2007).

In order to face the though competition on the communications market, Sprint Nextel completed several strategic alliances. The most important alliances were completed with Cisco, IBM, Microsoft, Northrop Grumman, HP, EDS, Lucent, Nortel, and Unisys. Sprint Nextel divides these strategic alliances into two categories: platinum alliances, and gold alliances (Sprint Nextel, 2007). For Sprint Nextel, platinum alliances are considered to be the following:

Cisco: together with Cisco, Sprint Nextel offers differentiated IP/MPLS, Managed IP Telephony, Managed Network and Security services that enable the convergence of voice, video, and data

IBM: the alliance between the two companies was intended to integrate Sprint Nextel's extensive network capabilities with IBM's software assets and business process knowledge that are unique for the moment in order to provide custom solutions that enable real-time applications. Such a custom solution is Sprint Business Mobility Framework

Microsoft: the alliance between these two companies consists in offering business and consumer applications delivered via Sprint's wireless services. The two companies together also provide solutions that ensure network security and reliability

Northrop Grumman: the purpose of the alliance between the two companies was that of providing both private and public secure networks and other joint solutions also that are able to meet the needs and requirements of Federal Government, State Government, and also Local Government

HP: Sprint Nextel Corporation and HP developed joint technology through which the two companies will introduce industry-leading mobility solutions that include embedded technology that may extend the workplace

For Sprint Nextel, the gold alliances are considered to be the following:

EDS: the alliance between Sprint Nextel and EDS is supposed to leverage Sprint Nextel's leading-edge network and integrated communication services combined with EDS's managed services and business process capabilities that have not been matched yet by any competitor on the market

Lucent: the two companies have joined forces in order to develop wireless data services including Mobile Broadband and the delivery of network-based VoIP solutions

Nortel: Sprint Nextel and Nortel have formed and alliance for the purpose of combining Sprint's network and managed services expertise with Nortel Networks' voice and data equipment expertise in order to provide next-generation telephony services

Unisys: the strategic alliance between Sprint Nextel and Unisys is based on providing hosted communications solutions, managed telecommunications services and secure asset tracking solutions

In addition to the above mentioned activities, Sprint Nextel Corporation also wholesales capacity on its PCS wireless network to other companies, called Mobile Virtual Network Operators (MVNO). In other words, MVNO uses the Sprint PCS network for coverage (Wikipedia, 2007). Afterwards, these wireless services are resold by MVNO under their own brands. The operators that currently use Sprint Nextel's PCS network for coverage include: Virgin Mobile, BeyondMobile, Working Assets, Telispire, STI Mobile, Liberty Wireless, Powernet Global, Platinum Tel, Disney Mobile, Movida Wireless, Helio, Lucky Aces, Jitterbug Wireless, Humane Society Wireless, Qwest Wireless, Kajeet, and KDDI Mobile.

Also, Sprint Nextel spun off its local telephone division into a separate company that was named Embarq Corporation. Currently, the company is the fourth largest local exchange carrier in the United States and the largest independent local provider. Embarq is active on the markets of: Florida, Indiana, Kansas, Minnesota, Missouri, Nebraska, Nevada, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, Wyoming.

In addition to the platinum gold alliances mentioned above, Sprint Nextel decided to form a partnership with a coalition of U.S.-based cable television providers in November 2005. The purpose of this partnership was for the cable TV customers to be able to bundle the Sprint Nextel cellular phones with either Comcast, Time Warner Cable, Cox Communications or Advance/Newhouse Communications cable bills. Also, the cable companies involved in this partnership decided to develop several products together with Sprint Nextel that would allow users to initiate advanced features, like control their Digital Video Recorder by cell phone (Wikipedia, 2007).

However, the most important, acknowledged, and productive Sprint Nextel brand is Sprint PCS, which was also the most important brand of the former Sprint Corporation. This is another argument that indicates that Sprint was the important party of the merger, much more important than Nextel.

PCS's success nationwide is due to Sprint Nextel's numerous affiliated wireless companies that build Sprint Nextel's network infrastructure and also operate retail stores. The PCS network operates a 3G wireless network. It is expected that Sprint Nextel will spend more than $2.5 billion for upgrading the current network (Wikipedia, 2007).

What went right?

Basically the idea of a merger, or acquisition, between the former Sprint Corporation and Nextel Communications was a good one. The two companies held all the cards for succeeding together. An alliance, or even more, a merger between two of the United States giants on the telecommunications market was meant to be a success. Before the merger, the two former companies were very successful on their own, but joining forces seemed it could bring even more success. Acting together under one roof seemed to be a more successful idea for the two companies' future.

There has been much talk about the two companies not having equal value. This fact is the true situation, but it is not a negative one, as some suggested. Although the two companies were considered to be equal when the merger was completed, it was obvious that Sprint Corporation was the larger company compared to Nextel Communications. And this fact is actually a positive one. Alliances, partnerships, or mergers do not have much success when the parties involved in the merger are equal. It is a known fact that a 50% - 50% relationship cannot be successful in any way in the business world. Therefore, the fact that one of the companies, Sprint Corporation, was more important than the other company involved in the merger and the future partnership proved to be a decisive one. This way, a better balance between the two former companies was realized.

Also, the fact that the two former companies, Sprint Corporation and Nextel Communications, joined forced and completed this merger was the right thing to do for both companies. The range of activities was diversified and expanded, their number of customers increased significantly and revenues modified in accordance to these positive changes. The former two companies now complete each other, which is a positive thing for both the companies and their customers.

What went wrong?

There are two aspects that endangered the success of the merger between Sprint Corporation and Nextel Communications: affiliated wireless companies, on the one hand, and confused customers, on the other hand.

Before engaging in this merger, both Sprint Corporation and Nextel Communications were involved in dependence relationships with affiliated wireless companies. These affiliated companies announced their opposition towards the merger between the two former companies from the beginning. And they did more than this, as both Sprint and Nextel ended up involved in serious litigation issues with most of these affiliated companies. Therefore, the newly formed Sprint Nextel was practically forced to acquire most of the affiliated wireless companies. The few companies that were not acquired by Sprint Nextel benefited from renegotiation of their contracts and agreements with Sprint Nextel. This issue deeply affected Sprint Nextel on a financial level. In addition to this, after acquiring most of the affiliated wireless companies, Sprint Nextel had to reconsider its business system, which generated several changes regarding costs management, human resources management, and time management. Also, by acquiring most of the affiliated wireless companies, the newly formed Sprint Nextel was growing larger and larger, losing its supple and flexible shape, which will probably have significant negative effect on medium term and long-term. However, acquiring most of Sprint's and Nextel's former affiliates was not all wrong, as the newly formed Sprint Nextel benefited from the number of clients brought by these affiliates, which significantly increased Sprint Nextel's total number of customers.

The second issue that had a negative influence on the merger's well-functioning is related to the customers that were slightly confused by he changes generated by the merger. Once the merger was completed, both former companies had to go through certain changes. Some aspects that were not considered to be suitable with the new company had to be abandoned by both companies. Other issues were somehow borrowed from one company to the other in order to complete each other's activity and to better assimilate each other's products and services. These changes reflected in the range of products and services provided by the new Sprint Nextel. Therefore, old customers of the former Sprint Corporation and Nextel Communications were somehow confused by the new situation they were facing. In addition to this, some of Sprint Nextel's competitors started offering similar, almost identical, products and services, which increased Sprint Nextel's customers' confusion about the company's products. Therefore, Sprint Nextel was determined to make some changes in the marketing strategy and in the customer relationship approach. As a consequence, certain customers benefited from several discounts offered by Sprint Nextel for purchasing the company's products and services.

Positive impacts

The 2004 merger between Sprint Corporation and Nextel Communications had significant impacts on the two former companies, on their customers, on their competitors, and on the U.S. telecommunications market in general. The most important positive impacts are:

The merger between the two giants on the telecommunication market created a new major wireless phone power with an immense customer base (CNN, 2004).

The new company will have over 40 million customers

The price paid by Sprint Corporation for Nextel Communication was not a very big one, so there was no great disturbance in the newly formed company's financial situation

The merger determined most of Sprint Nextel's competitors to change their strategies

The merger is very suitable for both companies, as "the two companies' strengths fit very well with one another - Sprint is seen as a leader in wireless data communications and has a stronger presence in the consumer market, while Nextel has been the pioneer in the walkie-talkie service and has its primary customer base among business customers" (CNN, 2004).

Net cost savings for the two former companies are expected to reach $1.2-$1.5 billion in 2006, $800-$900 million in 2007, and $1.8-$2.2 billion in 2008

Sprint Nextel Corporation became the third largest U.S. carrier after the merger was completed

No customers will be forced to migrate from CDMA technology to iDEN technology and vice versa (German, 2005).

No immediate changes will occur in the Sprint and Nextel cell phones

All current contracts will remain in effect

In 2008 Sprint Nextel will start developing voice over IP and push-to-talk services on Sprint's next-generation wireless platform (Needle, 2005).

Negative impacts

Although things are getting a good turn for the two former companies and their customers after completing the Sprint Nextel merger, it seems that there are a few negative impacts that need to be taken into consideration:

After the merger, Nextel cell phones started to have a very bad connection, thing that has not happened before the merger

It seems that Sprint Nextel incomes for 2007 will fall below the expected value: "its revenue will be flat and that it will lay off 5,000 employees to cut costs" (Pappalardo, 2007).

The company's capital expenditures will increase

Conclusions

The merger between the former Sprint Corporation and Nextel Communications was expected to be an immense success. And it was, in the beginning, when the newly formed Sprint Nextel Corporation began its activity as the third largest telecommunications company on the United States market. Although the two companies held all the cards that could have made this merger become a success, it seems that financial expectations were not met, which led to Sprint Nextel's problems.

The merger had to face serious opposition from the two companies' affiliated wireless companies that did not want to lose their benefits from their agreements with both companies, so they practically forced the newly formed Sprint Nextel Corporation to acquire them or to renegotiate the agreements.

However, the positive outcomes generated by this merger are considered to be greater than the outcomes that would have been reached by each company alone.

Reference List

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