The announced union of Sprint and Nextel Communications yesterday marked the second mega-deal in the wireless industry this year and the second involving a life change for...
The announced union of Sprint and Nextel Communications yesterday marked the second mega-deal in the wireless industry this year and the second involving a life change for a Craig McCaw-built venture.
The merger of equals, which results in a company called Sprint Nextel, may also mean a new chapter for Kirkland-based Nextel Partners and puts T-Mobile USA of Bellevue a distant last among national wireless carriers.
Those are among the reverberations that the $35 billion deal is having in the Puget Sound area. The deal is expected to be completed next year, pending regulatory and shareholder approval.
The announcement closely follows Cingular Wireless’ purchase of Redmond-based AT&T Wireless. Cingular is now the largest carrier in the U.S., leapfrogging Verizon Wireless. Sprint Nextel will be the third largest, with T-Mobile fourth.
For years, analysts had expected a shake-up in the industry. While carriers scrambled to lure customers by dropping prices and rolling out new services, they faced a shortage of spectrum, or airwaves, to handle expansion and upgrades.
In order to launch the next generation of services, carriers needed more capacity. That helped prompt the consolidation now occurring.
Best known for starting McCaw Cellular Communications, which he sold to AT&T for $11.5 billion in 1994, he later rescued Nextel Communications by investing about $1.1 billion to make it one of the country’s largest carriers.
McCaw’s interest in Nextel came after his participation in AT&T Wireless faded. He was searching for a new opportunity, and Nextel was trying to evolve from its roots as a dispatch service into a digital voice provider.
Its first attempts largely failed. In 1994, the company lost $150 million on $84 million on revenue. Nextel’s stock had collapsed and customers weren’t happy.
The next year in moves considered daring McCaw stepped in and pledged an initial investment of $300 million, which would grow to $1.1 billion over six years. Eventually, he would own 23 percent of the company.
“We were challenged on every front,” said Dan Akerson, hired in 1996 by McCaw to be Nextel’s chief executive. “Other than having limited money, limited cash, technology that didn’t work and a challenged spectrum position, everything was great.”
Akerson, who stepped down as CEO in 1999, said McCaw’s genius was in “being able to see through the wreckage of a company, and the way to resurrect it that no one [in] the industry could see as a possibility.” (McCaw was unavailable to comment for this story.)
Akerson said the team McCaw assembled negotiated with Motorola, its key technology vendor, to fix the problems associated with the technology. Nextel steadily regained a respectable position, differentiating itself by offering its walkie-talkie feature, dubbed push-to-talk.
Ironically, Nextel Communications finds itself somewhat in the same position as when McCaw stepped in almost a decade ago. Its specialized technology, called iDEN, no longer has a logical path for rolling out new services.
Nextel faced changing platforms and a lack of spectrum, said Derek Kerton of Kerton Group, a wireless consultancy with offices in San Jose, Calif. “Nextel watchers knew for years that iDEN technology was a dead end,” he said.
Now, with Sprint, Nextel will adopt Sprint’s widely used CDMA platform.
As for McCaw, he stepped down from the Nextel board last year and reduced his holdings to less than 5 percent, according to company filings.
Buyout of Nextel Partners?
The Sprint and Nextel merger has another local connection: Change could be coming for Nextel Partners, a carrier that operates Nextel-branded services in smaller markets.
Under McCaw’s guidance, Nextel Partners was founded in 1998 on the premise that it would build out and operate Nextel services in markets such as Honolulu and Pensacola, Fla. Nextel Communications provided the spectrum in exchange for an equity stake, which stands at 32 percent today.
The publicly owned Nextel Partners now has 3,000 employees, 60 in its Kirkland headquarters, and 1.5 million subscribers in 31 states. John Chapple, a former McCaw Cellular executive, is CEO.
Although Nextel Partners is otherwise independently owned and operated, an agreement with Nextel Communications stipulates that in the event of a sale, Nextel Communications has the option of buying most or all of the remaining Nextel Partners shares.
Sprint Nextel and Nextel Partners have 500 days to work out an agreement. Representatives from Nextel Partners, Nextel Communications and Sprint declined to comment yesterday.
Another area-based company feeling the draft from the deal is Bellevue-based T-Mobile USA. Formerly VoiceStream Wireless, it was purchased in 2001 by German telecommunications giant Deutsche Telekom.
Today, T-Mobile USA has more than 16 million subscribers in the U.S., less than half of the newly formed Sprint Nextel. That raises questions about how the carrier will compete when all of its major rivals can benefit from the economies of scale.
“It will be very interesting to see T-Mobile in 2005 and beyond.” said Lisa Pierce, a vice president at Forrester Research in Cambridge, Mass. “I’m sure that the rumors of Sprint and Nextel merger [had] them pondering those things.”
T-Mobile USA CEO Robert Dotson addressed some of those issues at an investor event last week. He also disclosed that the company would put plans to roll out high-speed data services, called 3G, on hold until it had sufficient spectrum. That delay had analysts wondering even more about how T-Mobile will compete.
Dotson was unavailable to elaborate yesterday, but T-Mobile spokesman Bryan Zidar said Deutsche Telekom has earmarked 2 billion euros (about $2.7 billion) for buying wireless spectrum. He also said that all the units in T-Mobile International have 67 million customers worldwide combined.
In the meantime, Zidar said T-Mobile would continue focusing on its core strengths: providing good customer service and innovating with new services and exclusive devices.
Tricia Duryee: 206-464-3283 or firstname.lastname@example.org