Merger Mania
By Carlo Longino, Fri Dec 10 00:45:00 GMT 2004

Now that Cingular has closed its acquisition of AT&T Wireless, Sprint and Nextel are rumored to be in merger talks.

The US financial press is abuzz with rumors of a Sprint-Nextel linkup. Adding the country's fifth-biggest carrier, Nextel, to third-placed Sprint would create a carrier of more than 30 million users that would remain the third biggest, but there are a number of reasons such a deal would make sense.

While Nextel's iDEN and Sprint's CDMA networks are incompatible, Nextel is yet to announce its 3G plans, though it has been tinkering with Flarion's Flash-OFDM technology. Joining forces with Sprint would make CDMA2000 the operator's choice, and in some sense, it would get the network without having to pay for it. Nextel's recent deal with the FCC to vacate its frequencies in the 800 MHz band, which interfere with public safety radios, in exchange for 1900 MHz spectrum, along with Sprint's holdings, would give any merged operator plenty of spectrum in which to operate -- an idea bolstered by the relatively tiny amount of spectrum Cingular was forced by the government to divest when it bought AT&T Wireless.

Tying up the two networks could be an arduous task, given the different underlying technologies, but also because Nextel has to protect push-to-talk, its bread and butter. It can't make any major move to a new network (Sprint's, its own 3G network or otherwise) until it can offer a PTT service that's not only compatible with its current offering, but works just as well. While Sprint offers PTT on its CDMA network, the lack of buzz it generates would indicate it hasn't been particularly successful. There's always the possibility of dual-mode handsets spanning both networks, though that seems less likely than Nextel keeping its operations separate until Sprint's next-generation EV-DO network is up and running, then selling new service on it while gradually shifting its users over.

For Sprint, a deal would indicate that the company's decided it can best compete in the changing landscape by letting other people handle its segmentation. Nextel's primary focus is overwhelmingly on business users, apart from its Boost Mobile youth brand. Boost, which this week said it had gained its millionth user, is about the only American MVNO which doesn't use Sprint's network, which is quickly becoming a "carrier's carrier". Rolling in Nextel, with its business focus, to use its 3G network would almost be just like adding another MVNO, this one the opposite of Virgin Mobile.

A Sprint-Nextel tie-up would alter the market, leaving Sprint with its 33 million or so users behind Verizon's 42 million and the new Cingular's 46 million. This would put the squeeze on the last remaining national carrier, current number four T-Mobile, highlighting spectrum as probably the most valuable asset of US carriers, with T-Mobile's CEO saying today the company wouldn't launch a 3G network in the US for at least two years because it doesn't have enough. The operator has earmarked about $2.5 billion for buying additional spectrum, and is expected to be a major bidder in FCC auctions that start next month.