Sprint Nextel Merger: History, Impact, and Analysis

History of Sprint Corporation

Sprint Corporation's history began in 1899, when its founder, Cleyson Brown, established the Brown Telephone Company in Abilene, Kansas (Sprint Nextel, 2007). In 1972, the company's name was changed to United Telecommunications. The company acquired GTE Sprint in 1986 and began to be referred to simply as Sprint (Wikipedia, 2007). Although most telecommunications resources state that "Sprint" stands for Southern Pacific Railway Internal Network for Telecommunications, the name's true origin appears to be 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 to form U.S. Sprint. Later, in 1991, the newly formed U.S. Sprint was acquired by United Telecom, and the company's name was changed to Sprint.

In 1999, Sprint was set to merge with MCI WorldCom in a $129 billion deal between the two companies. Due to pressure from the U.S. Department of Justice and the European Union — both concerned about the new company creating a monopoly — the merger was eventually terminated by the boards of directors of both companies.

Even before merging with Nextel Corporation, Sprint was one of the largest telecommunications companies in the world. Sprint was among the most significant competitors in the American cellular phone market. In addition, Sprint Corporation provided local telephone services in certain smaller markets and operated as a Tier 1 Internet service provider through SprintLink.

Sprint's success was also attributable to its collaboration with affiliates — smaller companies that, together with Sprint Corporation, were engaged in building network infrastructure and operating retail stores. In exchange for this collaboration, Sprint allowed these companies to use its brand, radio spectrum, customer service infrastructure, and billing systems (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, Sprint acquired U.S. Unwired, one of its affiliates, for $1.3 billion.

In 2003, Sprint Corporation underwent marketing changes, recombining its business units — LTD (local telecom), Global Markets Group (long distance/wireline), and PCS (wireless) — into a new entity marketed as One Sprint. Given the subsequent merger with Nextel, Sprint decided to separate its wireline business into a separate company while retaining its long-distance and wireless business units within the newly formed combined entity.

Sprint's partnership with RadioShack began in 1996. By 1997, Sprint Stores were offering their communications services and products through RadioShack stores across the United States. The partnership proved highly successful: Sprint sold over 20 million 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. The total cost of the merger was estimated at $35 billion. For its activities, the company received several awards from Advertising Age, Forbes Magazine, Treasury & Risk Management Magazine, and others.

History of Nextel Communications

Nextel Communications was founded in 1987 by Morgan E. O'Brien, a telecommunications lawyer, under the name FleetCall. In 1993, the company changed its name to Nextel Communications (Wikipedia, 2007). Shortly after, "in less than a 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 track to serve all of the nation's top 50 markets" (Sprint Nextel, 2007). Initially, Nextel's business model was based on purchasing fleet dispatch frequencies at significant discounts compared to the same bandwidth in FCC-designated frequencies for standard wireless telephone service.

From that point forward, Nextel consistently demonstrated its capacity for innovation. In September 1996, Nextel introduced Motorola's breakthrough iDEN technology — the first combination of enhanced digital cellular service, two-way radio, and text/numeric paging in a single handset. As a result, the Nextel National Network was introduced in 1997.

Nextel Communications' success was rooted in its innovative mobile communications system. Nextel utilized a Specialized Mobile Radio (SMR) band that was not used by other cellular operators, making it one of the first U.S. operators to offer a national digital cellular coverage footprint.

The Sprint Nextel Merger

Sprint Corporation and Nextel Communications first announced their intention to merge in December 2004. The newly formed corporation was named Sprint Nextel Corporation. Although the deal was presented as a merger between two equals, the transaction was in reality a purchase of Nextel Communications by Sprint Corporation (Wikipedia, 2007). As a result, the newly formed corporation continued to be referred to simply as Sprint. At the time of the announcement, Sprint Corporation was ranked third among leading U.S. mobile phone providers, while Nextel Communications was ranked fifth.

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

The new merger was not welcomed by everyone affected by it. Most of the two companies' regional affiliates that provided wireless services on behalf of Sprint and Nextel took opposing positions to the merger. These affiliates argued that the newly formed company was breaking non-compete agreements that had existed between the former Sprint, Nextel, and the affiliates.

After the merger was completed, changes took place on both sides. Both Sprint's and Nextel's former business systems were modified to ensure the new company's smooth functioning. Although Nextel had been known for its free incoming call plan, Nextel's clients were given the opportunity to convert to Sprint-side plans, and Sprint's clients were able to convert to Nextel-side plans. These modifications required new phone equipment, which increased total costs and affected human resources planning and scheduling. A notable new development was that "Sprint Nextel may buy back fairly new but used cell phones for up to $50" (Wikipedia, 2007).

The merger required both companies to modify their structures. Certain features from each company were incorporated into the other. For example, after the merger, Sprint began offering free incoming call plans to its clients, while Nextel introduced fair and flexible plans for a transitional period. One common development for both Sprint and Nextel was the replacement of previous plans with the new Power Pack plans. These changes also modified overage fees, establishing a per-minute charge ranging between $0.25 and $0.45. Sprint was compelled to make these changes partly due to customer dissatisfaction stemming from competitors offering nearly identical plans. Sprint Nextel also adopted new marketing strategies, such as offering discounts to customers whose initial contract obligations had expired in exchange for signing new two-year contracts.