No Static Expected in Sprint-Nextel Deal

Industry watchers don’t expect any trouble from regulators or competitors when it comes to the proposed Sprint Nextel merger. The two companies announced their “merger of equals” Wednesday after nearly a week of rampant speculation.

The merger would create the third-largest wireless phone carrier in the United States, behind Cingular (a joint venture between BellSouth and SBC ) and Verizon Wireless (a joint venture between Verizon and Vodafone ).

Sprint Nextel would have approximately 38.5 million wireless customers, behind Verizon Wireless’ 42.1 million and Cingular’s 46 million.

Earlier this week, reports suggested Verizon was looking at purchasing Sprint , while a piece Thursday points to a Banc of America research note that states T-Mobile is interested in Nextel.

T-Mobile, a subsidiary of Germany’s Deutsche Telekom with 16.3 million U.S. subscribers, was left without a major wireless carrier partner after Cingular ended a joint venture with the company in May, contingent on the success of Cingular’s $41 billion bid for AT&T Wireless. T-Mobile was also rumored to be one of the original bidders for AT&T Wireless business.

Banc of America researchers find it unlikely the Sprint Nextel merger will fall apart. A report by SG Cowen Thursday agrees with that assessment, indicating federal regulators, as well as Sprint directors, would throw up a lot of hurdles if a Verizon-Sprint merger materialized. Legg Mason analysts pointed out earlier this week that a combination between the two companies would put more than 80 percent of the wireless phone market in the hands of the incumbent fixed-line telephone companies — Verizon, SBC and BellSouth.

That doesn’t mean its all smooth sailing ahead for Sprint and Nextel officials over the next year. Roger Entner, a director at the Yankee Group’s wireless mobile unit, said there will be some initial challenges for the companies as they adapt to each other’s business cultures: Sprint’s Midwestern roots and Nextel’s business in the Silicon Valley of the East, northern Virginia.

“They will have to adjust their styles to each other, no doubt about it,” he said. “Sprint is more conservative and Nextel is certainly more aggressive.”

He also thinks the company will have trouble meeting its six-to-nine month self-imposed deadline for closing the merger, despite the fact Cingular was able to do it when the Department of Justice (DOJ) approved the union in October.

“AT&T and Cingular was only possible that quickly because of the election, without the election this would have taken way longer,” Entner said. “It was in everyone’s best interest to get the merger done before the election. My bet would be on the nine [month] side rather than the six [month] side.”

It’s unlikely Sprint or Nextel will have to go through the same divestiture process as Cingular, which was forced to drop spectrum in several markets (in addition to its joint venture with T-Mobile) to alleviate anti-competition concerns.

The Cingular proposal
was a merger between the second- and third-largest wireless carriers in the
nation to leapfrog past Verizon Wireless for the top spot, while a Sprint
Nextel merger doesn’t change Sprint’s standing as third-largest U.S. carrier.

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