The deal, which still requires stockholder and regulatory approval, combines the third- and fifth-largest wireless carriers in the United States and strategically positions Sprint to compete better with Verizon and Cingular. It also comes at a time when Sprint is planning a multibillion-dollar network upgrade--and when rivals like Verizon are said to be considering acquiring Sprint.
Will the wireless industry turn into an example of "big-fish-eats-little-fish-only-to-be-eaten-by-bigger-fish?" Quite possibly, especially with the "hands-off" federal regulatory environment that will exist in Washington over the next four years. It seems unlikely that the FCC under Chairman Michael Powell will halt many telecom deals on antitrust grounds.
For their part, Sprint and Nextel project savings of $12 billon from their merger, gained from reduced capital spending and operating costs. Translated, that likely means lots of layoffs. Cingular, which just absorbed AT&T Wireless, is cutting 10% of its workforce or 7,000 jobs, an indication of what may be in store.
The upside is that many industry analysts believe the deal will strengthen both Sprint and the wireless industry in general, perhaps setting the stage for even more aggressively priced products to challenge traditional wire-line telephone providers.
Interestingly, a few weeks before the announcement, Sprint laid out plans to invest $3 billion to upgrade its network over the next three years and awarded contracts to Lucent Technologies, Motorola and Nortel to enable more rapid deployment of EV-DO wireless high-speed data network technology. Lucent scored the largest share of those contracts, about $ billion, to upgrade the base stations it supplies to Sprint by adding radio frequency carriers to support EV-DO. It's unlikely the Nextel deal will unravel any of that because Sprint needs to improve its network to compete with Cingular and Verizon.
However, a multi-billion dollar plan that Nextel had unveiled to upgrade its network seemed likely to be scrapped, or at least re-evaluated.
The new combined company will have to integrate nearly 39 million . wireless customers. Sprint intends to spin off its local telephone business to shareholders of the new company, which is called Sprint-Nextel.
All of this activity leaves T-Mobile USA, owned by Deutsche Telekom, in fourth place among . wireless providers with less than 17 million customers. Might an aggressive cable operator want to acquire that business to add a wireless play to its product portfolio?
It also leaves the telecom industry waiting for the next shoe to drop, probably on the wired side of the business. There's plenty of speculation that a weakened AT&T Corp., still recovering from the reckless maneuverings of the Michael Armstrong era, could be ripe for acquisition by BellSouth or SBC. A slowly recovering MCI might also be scooped up. Also uncertain is the ultimate fate of Sprint's local phone business.
All in all, Sprint-Nextel sets the stage for an unpredictable year in telecom.
