RichardDeaf
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Tuesday, May 6, 2008
Wireless provider Sprint Nextel Corp. is considering spinning off or selling its ailing Nextel unit, people familiar with the situation say. The move would be a dramatic acknowledgment that Sprint's $35 billion acquisition of Nextel Communications Inc. in 2005 has been a failure.
No deal is imminent, these people say, characterizing the discussions over Nextel's fate as part of an ongoing strategic review at Sprint. But the fact that Sprint is even contemplating undoing the Nextel merger highlights the problems facing the No. 3 wireless carrier in the U.S.
The discussions at Sprint mark the latest unraveling in a merger that was troubled from almost the beginning. Three years ago, the deal was hailed as a way for Sprint to gain the scale it needed to go up against industry leaders Cingular Wireless, since renamed AT&T Inc., and Verizon Wireless. Nextel was a fast-growing carrier that brought a base of business customers who spent $15 to $20 more per month on average than other cellphone users. Nextel's push-to-talk walkie-talkie technology gave its cellphones a feature other carriers couldn't match.
Cracks began to show in the months after the deal. Sprint's slow-moving and bureaucratic approach came into conflict with an entrepreneurial but less structured culture at Nextel. Those familiar with the company say the CEOs who forged the deal -- Sprint's Gary Forsee and Nextel's Tim Donahue -- carved up top management positions in a way that investors and many in the companies found confusing. Sprint failed to invest in Nextel's network at a time when other carriers were upgrading their own networks. Nextel's phones, provided exclusively by Motorola Inc., began to look stodgy and outmoded when handsets like Apple Inc.'s iPhone began hitting the market last year.
As AT&T and Verizon added a few million customers per quarter over the past couple of years, Nextel has seen a steady stream of subscriber losses. Nextel had 13.2 million users signed to monthly service contracts at the end of 2007, down from 16.6 million in early 2006. In many quarters, the losses at Nextel offset subscriber gains at Sprint. Overall, Sprint had 53.8 million customers at the end of 2007, compared with 70.1 million for AT&T and 65.7 million for Verizon Wireless.
Sprint took a $29.5 billion loss in the fourth quarter because of a massive write-down related to its Nextel business. The problems have helped wipe out two-thirds of Sprint's stock price since the merger. They also led to last year's ouster of Mr. Forsee and are a key area of focus for Sprint and its relatively new CEO, Dan Hesse. Since his arrival, Mr. Hesse has added several new handsets to the Nextel lineup, including a BlackBerry that has yet to hit stores, and ramped up marketing.
Sprint is said to be contemplating a couple of options for Nextel. The company has held preliminary talks with Nextel founder Morgan O'Brien, who now runs a company called Cyren Call Communications in McLean, Va., that is trying to create a nationwide wireless network for public-safety communications. People familiar with the discussions say Mr. O'Brien is trying to assemble a consortium of investors to acquire Nextel. Cyren Call itself wouldn't be the buyer.
Sprint is contemplating other possible buyers, such as private-equity firms. The company could also choose to spin off Nextel into a separate company. Activist investor Ralph Whitworth of Relational Investors, who obtained a seat on Sprint's board earlier this year, has advocated a sale or spinoff.
Nextel's current valuation is unclear. One telecom-industry veteran says its value "has significantly deteriorated" since the takeover, adding that the ailing unit now may be valued at from $5 billion to $16 billion. Even the high end of that range is less than half of what Sprint paid three years ago.
Takeover Potential
Selling the Nextel division could make Sprint a more attractive takeover target. By ridding itself of Nextel, Sprint should be able to shed several billion dollars in debt. Though smaller, Sprint would be better positioned to expand its subscriber base: Within the industry, Sprint is regarded as having a better handset selection and fewer dropped calls than Nextel.
Deutsche Telekom AG is weighing whether to make a bid for Sprint, according to people familiar with the German company. By acquiring Sprint, Deutsche Telekom -- which currently operates T-Mobile USA, a distant No. 4 in the industry with 28.7 million subscribers -- could catapult into the top three.
Sprint stock closed Monday at $8.72 in 4 p.m. trading on the New York Stock exchange, up 10% on news of the potential Nextel sale.
People familiar with Sprint's thinking say that while the company is exploring its options, it is too preoccupied with other strategic matters to move ahead quickly with any Nextel transaction. The carrier is closing in on a deal to create a joint venture with Craig McCaw's Clearwire Corp. that would build a nationwide high-speed wireless network using WiMax, an international broadband standard that hasn't yet been offered in the U.S. The venture, which would be backed by more than $3 billion in equity financing from leading cable providers and tech giants including Intel Corp. and GoogleInc., would be valued at more than $12 billion, people familiar with the situation said.
Nextel's walkie-talkie-style phones have traditionally been popular with construction workers, airline maintenance personnel and other business users. But the market for those services is shrinking. People close to the company project Nextel will have a core, highly loyal user base of five million to seven million subscribers in two years, about half of current levels. A decision last week by the Washington, D.C., Circuit Court of Appeals may exacerbate that situation: The court ruled that by June 26, Nextel must stop using certain radio frequencies that are close to those used by first responders. A Sprint spokesman said the company hasn't appealed the decision but is working to see how it can minimize impact on its customers.
Mr. O'Brien of Cyren Call is hoping a consortium of private-equity players or other financial investors could scoop up Nextel's national network of cell towers and use them for public-safety purposes, the people familiar with the discussions say. He is also hoping the new venture could bid for the radio spectrum the Federal Communications Commission has set aside for public safety.
Public-Safety Network
Mr. O'Brien's company is advising public-safety agencies on various models to team up with the private sector to build a new nationwide public-safety network. Improving public-safety communications has been a high priority for lawmakers and regulators after emergency communications miscues on Sept. 11 and in the aftermath of Hurricane Katrina in 2005.
Sprint doesn't necessarily need to shed Nextel. Another option is for the company to transition customers off Nextel's network and onto Sprint's. The company has been working to offer the same walkie-talkie service that Nextel users are accustomed to, and it has begun rolling out such handsets this year. That would allow the company to essentially shut down the Nextel network and cancel leases for cell towers nationwide, moves that could cost at least $1 billion, according to one person familiar with the situation.
- The Wall Street Journal
Wireless provider Sprint Nextel Corp. is considering spinning off or selling its ailing Nextel unit, people familiar with the situation say. The move would be a dramatic acknowledgment that Sprint's $35 billion acquisition of Nextel Communications Inc. in 2005 has been a failure.
No deal is imminent, these people say, characterizing the discussions over Nextel's fate as part of an ongoing strategic review at Sprint. But the fact that Sprint is even contemplating undoing the Nextel merger highlights the problems facing the No. 3 wireless carrier in the U.S.
The discussions at Sprint mark the latest unraveling in a merger that was troubled from almost the beginning. Three years ago, the deal was hailed as a way for Sprint to gain the scale it needed to go up against industry leaders Cingular Wireless, since renamed AT&T Inc., and Verizon Wireless. Nextel was a fast-growing carrier that brought a base of business customers who spent $15 to $20 more per month on average than other cellphone users. Nextel's push-to-talk walkie-talkie technology gave its cellphones a feature other carriers couldn't match.
Cracks began to show in the months after the deal. Sprint's slow-moving and bureaucratic approach came into conflict with an entrepreneurial but less structured culture at Nextel. Those familiar with the company say the CEOs who forged the deal -- Sprint's Gary Forsee and Nextel's Tim Donahue -- carved up top management positions in a way that investors and many in the companies found confusing. Sprint failed to invest in Nextel's network at a time when other carriers were upgrading their own networks. Nextel's phones, provided exclusively by Motorola Inc., began to look stodgy and outmoded when handsets like Apple Inc.'s iPhone began hitting the market last year.
As AT&T and Verizon added a few million customers per quarter over the past couple of years, Nextel has seen a steady stream of subscriber losses. Nextel had 13.2 million users signed to monthly service contracts at the end of 2007, down from 16.6 million in early 2006. In many quarters, the losses at Nextel offset subscriber gains at Sprint. Overall, Sprint had 53.8 million customers at the end of 2007, compared with 70.1 million for AT&T and 65.7 million for Verizon Wireless.
Sprint took a $29.5 billion loss in the fourth quarter because of a massive write-down related to its Nextel business. The problems have helped wipe out two-thirds of Sprint's stock price since the merger. They also led to last year's ouster of Mr. Forsee and are a key area of focus for Sprint and its relatively new CEO, Dan Hesse. Since his arrival, Mr. Hesse has added several new handsets to the Nextel lineup, including a BlackBerry that has yet to hit stores, and ramped up marketing.
Sprint is said to be contemplating a couple of options for Nextel. The company has held preliminary talks with Nextel founder Morgan O'Brien, who now runs a company called Cyren Call Communications in McLean, Va., that is trying to create a nationwide wireless network for public-safety communications. People familiar with the discussions say Mr. O'Brien is trying to assemble a consortium of investors to acquire Nextel. Cyren Call itself wouldn't be the buyer.
Sprint is contemplating other possible buyers, such as private-equity firms. The company could also choose to spin off Nextel into a separate company. Activist investor Ralph Whitworth of Relational Investors, who obtained a seat on Sprint's board earlier this year, has advocated a sale or spinoff.
Nextel's current valuation is unclear. One telecom-industry veteran says its value "has significantly deteriorated" since the takeover, adding that the ailing unit now may be valued at from $5 billion to $16 billion. Even the high end of that range is less than half of what Sprint paid three years ago.
Takeover Potential
Selling the Nextel division could make Sprint a more attractive takeover target. By ridding itself of Nextel, Sprint should be able to shed several billion dollars in debt. Though smaller, Sprint would be better positioned to expand its subscriber base: Within the industry, Sprint is regarded as having a better handset selection and fewer dropped calls than Nextel.
Deutsche Telekom AG is weighing whether to make a bid for Sprint, according to people familiar with the German company. By acquiring Sprint, Deutsche Telekom -- which currently operates T-Mobile USA, a distant No. 4 in the industry with 28.7 million subscribers -- could catapult into the top three.
Sprint stock closed Monday at $8.72 in 4 p.m. trading on the New York Stock exchange, up 10% on news of the potential Nextel sale.
People familiar with Sprint's thinking say that while the company is exploring its options, it is too preoccupied with other strategic matters to move ahead quickly with any Nextel transaction. The carrier is closing in on a deal to create a joint venture with Craig McCaw's Clearwire Corp. that would build a nationwide high-speed wireless network using WiMax, an international broadband standard that hasn't yet been offered in the U.S. The venture, which would be backed by more than $3 billion in equity financing from leading cable providers and tech giants including Intel Corp. and GoogleInc., would be valued at more than $12 billion, people familiar with the situation said.
Nextel's walkie-talkie-style phones have traditionally been popular with construction workers, airline maintenance personnel and other business users. But the market for those services is shrinking. People close to the company project Nextel will have a core, highly loyal user base of five million to seven million subscribers in two years, about half of current levels. A decision last week by the Washington, D.C., Circuit Court of Appeals may exacerbate that situation: The court ruled that by June 26, Nextel must stop using certain radio frequencies that are close to those used by first responders. A Sprint spokesman said the company hasn't appealed the decision but is working to see how it can minimize impact on its customers.
Mr. O'Brien of Cyren Call is hoping a consortium of private-equity players or other financial investors could scoop up Nextel's national network of cell towers and use them for public-safety purposes, the people familiar with the discussions say. He is also hoping the new venture could bid for the radio spectrum the Federal Communications Commission has set aside for public safety.
Public-Safety Network
Mr. O'Brien's company is advising public-safety agencies on various models to team up with the private sector to build a new nationwide public-safety network. Improving public-safety communications has been a high priority for lawmakers and regulators after emergency communications miscues on Sept. 11 and in the aftermath of Hurricane Katrina in 2005.
Sprint doesn't necessarily need to shed Nextel. Another option is for the company to transition customers off Nextel's network and onto Sprint's. The company has been working to offer the same walkie-talkie service that Nextel users are accustomed to, and it has begun rolling out such handsets this year. That would allow the company to essentially shut down the Nextel network and cancel leases for cell towers nationwide, moves that could cost at least $1 billion, according to one person familiar with the situation.
- The Wall Street Journal
