Sprint-Nextel: Deal from Hell

Posted by Sam Churchill on

Sprint has written down nearly $30 billion related to their 2005 merger with Nextel. That’s “B” as in Boy. Which is pretty much what they paid for Nextel. According to The Wall Street Journal, it’s the ‘Deal From Hell

The company reported a net loss of $29.45 billion, which is more than its market capitalization. It also suspended its dividend and wrote down an additional $29.7 billion related to the 2005 acquisition of Nextel.

Each side had a market capitalization near $33 billion when they first agreed to merge — now the whole company’s market cap is $25 billion. Sprint’s shares fell today to $7.75, the lowest level since October 2002.

In the years after the acquisition, there was a lot of finger-pointing among the Sprint and Nextel. In the end, it was Sprint’s board that approved the merger.

Nextel started out as simplex (push to talk service) for taxis and other dispatch services, using one or two hill-top, community towers. Then the FCC authorized Nextel to enter commercial cellular service, using multiple neighborhood antennas. But Nextel frequencies adjoin public service frequencies, unlike cellular frequencies.

The Nextel interference problem started when Nextel was allowed to expand into cellular service. As Nextel built out cell towers, nearby, low-power police radios were drown out. The FCC said it wouldn’t be a problem.

They were wrong.

Under the Consensus Plan agreed to in 2004, public service agencies will gain use of the 700 and 800 Mhz bands currently operated by Nextel that were causing interference:

  • Nextel would exchange 16 megahertz of spectrum spread around the 700 MHz, 800 MHz and 900 MHz bands for 6 megahertz in the 800 MHz band and 10 megahertz in the 1.9 GHz band.
  • Nextel will then have 16 megahertz of contiguous spectrum in the 800 MHz band, on which the carrier could continue to offer its voice service, and 10 megahertz in the 1.9 GHz (PCS) band to offer “3G” services in the future.
  • Nextel would then have a total of 26MHz, about what it had before the move, but allocated differently to avoid interference and consolidate their spectrum bands in 800 Mhz and 1.9Mhz.

Nextel is now consolidating everything into one block of 800 MHz and one block of 1.9GHz frequencies. Nextel agreed to give the Treasury $4.8 billion (for no additional spectrum), less $2.5 billion for their estimated moving costs. Nextel is now shifting their current interfering frequencies to clear contiguous blocks at 800MHz and 1.9 GHz.

But 1.9GHz is currently used by television broadcasters for live microwave links. So Nextel agreed to pay all costs associated with corporate media’s “rebanding of 2 GHz“. Broadcasters pay nothing for their new gear or microwave frequencies.

The frequency move has not gone well, says the Wall Street Journal. All sides acknowledge they hadn’t anticipated just how difficult making changes would be. Nextel was obligated to pay at least $2.8 billion in cash to fund the frequency transition and have already have spent $1.1 billion. Now, according Sprint Nextel’s 10-K report, the best-case scenario is that rebanding will cost the carrier between $2.7 billion and $3.4 billion.

As if that weren’t bad enough, Qwest could take its 824,000 wireless subscribers from Sprint to rival Verizon Wireless next year when its current mobile virtual network operator agreement expires, reports RCR News.

Related DailyWireless articles include; Sprint-Nextel to Merge, Sprint-tel: Done Deal?, Sprint Forces Forsee Out, The OTHER Public Safety Band, Nextel Accepts Consensus Swap.

Posted by Sam Churchill on Thursday, February 28th, 2008 at 11:49 am .

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