- The Washington Times - Wednesday, December 15, 2004

Customers are not expected to notice immediate changes after Sprint Corp. purchases Nextel Communications Inc., primarily because it will take years for the wireless telephone companies to combine their distinctive networks.

Sprint announced its long-rumored acquisition of Nextel yesterday. The deal would create a company with about $40 billion in annual revenue and more than 35 million wireless subscribers, third only to Cingular Wireless LLC and Verizon Wireless Inc.

The combined company, to be called Sprint Nextel, would be based in Reston. The two businesses now have between 3,000 and 5,000 employees in Fairfax County, according to county officials.

The merger will give Sprint — which primarily serves consumers — access to Nextel’s prized 15.3 million-customer subscription base, composed mainly of business executives and government workers. For Nextel, the deal means not having to pay for a costly upgrade of its own network.

“This merger positions Sprint Nextel for greater success than either company could have achieved alone,” said Gary D. Forsee, Sprint’s chairman and chief executive officer, who announced the deal in New York.

Customers are unlikely to notice changes right away, analysts said. The deal is not expected to be closed until mid-2005, and the two companies probably will spend years combining their vastly different networks.

“It’s not like jamming together two grocery store chains. Though they are both wireless companies, they have very different audiences,” said Kevin M. Roe, an independent analyst in New York.

Sprint customers use a technology called Code Division Multiple Access, or CDMA, to make phone calls. It is more conventional than the unique walkie-talkie-style technology that has become Nextel’s trademark.

The technology Nextel uses is not capable of the high-speed Internet and data services that cellular customers are increasingly demanding, one reason why the company has been eager to adopt CDMA-style technology.

Sprint and Nextel estimate the deal will save them $12 billion in total operating costs and network upgrades, including between $2 billion and $3 billion for Nextel to build a new CDMA-compatible network.

In July, the Federal Communications Commission gave Nextel permission to move its network to a different spectrum to eliminate interference between its phones and emergency-response radios in hundreds of cities.

Combining the two standards poses some risk for the companies. If Nextel tries to push CDMA on its customers too quickly, it could cause a backlash and “dilute” its brand, said Chris Sessing, an analyst for the Crowell, Weedon & Co. investment group in Los Angeles.

In the past year, Verizon and other wireless carriers have introduced features that mimic Nextel’s “push-to-talk” technology.

Several analysts predicted the deal will be the last major merger between telecommunications companies for awhile. They also said the deal is unlikely to stifle competition because Sprint and Nextel serve such distinct customer bases.

“There are still competitors entering the marketplace,” said Albert Lin, research director for American Technology Research Inc. in Connecticut.

However, the Consumers Union criticized the proposed deal this week. Officials with the nonprofit organization that publishes the Consumer Reports magazine said if the deal goes through, three companies — Cingular, Verizon and Sprint Nextel — will control 75 percent of all wireless customers in the United States.

Sprint’s acquisition of Nextel is subject to approval from the FCC and the Justice Department, as well as utility commissions in the states.

Cutting the number of national competitors to four from five will not necessarily trigger a challenge from federal antitrust authorities, analysts say, although Justice Department regulators are expected to study the matter closely.

After completion of the deal, Sprint’s local telecommunications business would be spun off to the combined company’s shareholders. The local tele-communications business accounted for $6 billion of their combined revenue.

The company expects the local business to have roughly 22,000 employees and the combined wireless company to have about 55,000 employees.

While these numbers match existing employee totals for both companies, executives said jobs would be cut.

“At the end of the day, it will be about rationalizing and downsizing,” Mr. Forsee said. Other officials with the companies said it is too early to say where job cuts might be made.

Although Sprint Nextel will have its headquarters in Reston, where Nextel is based, its operational headquarters will be in Overland Park, Kan., where Sprint has its headquarters.

The deal calls for Mr. Forsee to become president and chief executive officer of Sprint Nextel, and Timothy M. Donahue, now president and chief executive officer of Nextel, to become chairman of the new company.

The new company’s board would consist of 12 directors, with six from each company.

Under the deal’s terms, Sprint shareholders would get one share of the new company for each Sprint share while Nextel shareholders would get the equivalent of 1.3 Sprint Nextel shares for each of their shares with a small amount of that sum paid in cash.

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