Sprint Nextel Merger Term Paper

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Sprint Nextel Merger

History of Sprint

Sprint Corporation's history started in 1899, when its founder, Cleyson Brown, founded the Brown Telephone Company in Abilene, Kansas (Sprint Nextel, 2007). In 1972 the company's name was changed into United Telecommunications. The company acquired GTE Sprint in 1986, and started to be referred to as Sprint (Wikipedia, 2007). Although most telecommunications resources state that Sprint stands for Southern Pacific Railway Internal Network for Telecommunications, it seems that the real provenience of the name is: Switched Private Network Telecommunications.

The first six metropolitan areas to benefit from Sprint services were: New York, Boston, Philadelphia, Los Angeles, San Diego, and Anaheim. In 1986, Sprint merged with U.S. Telecom, forming U.S. Sprint. Later, in 1991, the newly formed U.S. Sprint was finally acquired by United Telecom, changing the company's name to Sprint.

In 1999 Sprint was supposed to merge with MCI WorldCom in a $129 billion between the two companies. Because of the U.S. Department of Justice and European Union's pressure and concerns of the new company creating a monopoly, eventually the merger was terminated by the Board of Directors of both companies involved.

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Even before merging with Nextel Corporation, Sprint was one of the largest telecommunications companies in the world. Sprint was one of the most important competitors in the American cellular phone market. In addition to this, Sprint Corporation was also providing local telephone services for certain smaller markets. Sprint was also a Tier 1 Internet service provider through SprintLink.

TOPIC: Term Paper on Sprint Nextel Merger Assignment

Sprint's success is also due to the company's collaboration with affiliates. These affiliates were smaller companies that together with Sprint Corporation were engaged into building network infrastructure and operating retail stores. For this collaboration, Sprint allowed these companies to use its brand, radio spectrum, customer service and billing (Wikipedia, 2007). The most important affiliates for Sprint were: Alamosa PCS, Ubiquitel, iPCS, Shentel Enterprise, Gulf Coast Wireless, Northern PCS, Swiftel, and IWO. In 2005, for $1.3 billion, Sprint acquired U.S. Unwired, one of its affiliates.

In 2003, Sprint Corporation went through some marketing changes, recombining the company's business units: LTD (local telecom), Global Markets Group (long distance/wireline), and PCS (wireless). These business units were combined into a new company that was afterwards marketed as One Sprint. Given the merger with Nextel, Sprint decided to separate its wireline business to a separate company, but maintained the long distance and wireless business units into the company formed together with Nextel.

Sprint's partnership with RadioShack started in 1996. Later, in 1997, Sprint Stores started to offer their portfolio communications services and products through RadioShack stores across the United States. The partnership has proven to be very successful for Sprint Corporation, since the company sold over 20 million Sprint cellular phones through RadioShack stores.

In 2005 Sprint Corporation merged with Nextel Communications, becoming the third largest wireless telecommunications network operator in the United States. However, the newly formed company is still referred to as Sprint. The total cost of the merger between Sprint and Nextel was estimated at $35 billion. For its activity, the company has received several awards from Advertising Age, Forbes Magazine, Treasury & Risk Management Magazine, and others.

History of Nextel

Nextel Communications was founded in 1987 by Morgan E. O'Brian, a telecommunication lawyer, under the name of FleetCall. In 1993 the company changed its name into Nextel Communications (Wikipedia, 2007). After this, "in less than year's time, Nextel merged with Dial Call and OneComm, acquired all of Motorola's SMR licenses in the U.S., and received a $1 billion investment from wireless pioneer Craig McCaw. By mid-1995, Nextel was on point to serve all of the nation's top 50 markets" (Sprint Nextel, 2007). Initially, Nextel's business model was based on buying fleet dispatch frequencies at significant discount compared to the same bandwidth in established FCC designated frequencies for wireless telephone service.

From that moment on, Nextel started proving its innovation capability constantly. In September 1996, Nextel introduced Motorola's breakthrough iDEN technology. This was the first combination of enhanced digital cellular, two-way radio and text/numeric paging in one phone. As a consequence, in 1997 the Nextel National Network was introduced.

Nextel Communications' success is due to the company's innovative mobile communications system. Nextel used a Specialized Mobile Radio band (SMR) that was not used by other cellular operators. This way, Nextel became one of the first United States operators to offer a national digital cellular coverage footprint.

History of Sprint Nextel merger

Sprint Corporation and Nextel Communications first announced their intention to merge on December 2004. The newly formed corporation was names Sprint Nextel Corporation. The deal was considered to be a merger between two equal companies, but in reality the transaction actually consisted in Sprint Corporation purchasing Nextel Communications (Wikipedia, 2007). As a consequence, the newly formed corporation is referred to as Sprint. At the time the merger was announced, Sprint Corporation was rated no. 3 among leading providers in the United States mobile phone industry, while Nextel Communications was rated no. 5.

The merger was officially approved by Sprint shareholders in July 2005. The official merger deal was approved in August 2005 by the Federal Communications Commission (FCC) and the U.S. Department of Justice. However, the merger was conditioned by the FCC: Sprint Nextel Corporation had to provide wireless service within the 2.5 GHz band for the following four years. Finally, the deal was completed on August 12, 2005, when Sprint Nextel Corporation was officially formed.

However, the new merger between the two giants on the U.S. mobile phone market was not welcomed by everyone directly or indirectly affected by the new situation. Therefore, most of these two companies' regional affiliates that provided wireless services on behalf Sprint and Nextel took an opposite position to the merger. The regional affiliates' motivation for their opposition was the fact that they considered the newly formed company was breaking non-compete agreements between the former Sprint and Nextel and the affiliates.

After the merger was completed, there were changes on both sides. Both Sprint's and Nextel's former business systems changed in order to ensure the new company's well-functioning. Therefore, although Nextel was famous for its former free incoming call plan, Nextel's clients have the opportunity to convert their plans to the Sprint side, while Sprint's clients have the opportunity to convert their accounts to the Nextel side. These modifications that were made by both sides were not possible without acquiring new phone equipment, that increased total costs and changed the human resources planning and time scheduling. A new aspect that was brought by the merger of the two companies was the fact that "Sprint Nextel may buy back fairly new but used cell phones for up to $50" (Wikipedia, 2007).

The merger required that both companies modify their structure. As a consequence, certain aspects had to be abandoned by each company, certain new aspects had to be included in both companies, while other aspects had to become common for both companies. Therefore, several features from each company had to be incorporated into the other. For example, after the merger Sprint started to offer its clients free incoming plans, while Nextel started offering fair and flexible plans for a period of time. One of the common aspects for both Sprint and Nextel is the fact that they replaced the plans mentioned before with the newer Power Pack plans. These changes consequently reflected in the modifications of he overage fees to a set per minute charge that ranged between $0.25 and $0.45. Sprint was somehow forced to make these changes because of the agitation among its clients that needed to be reduced. This agitation state among the company's clients was due to similar, almost identical, plans offered by the company's competitors. In addition to this, Sprint was forced into applying certain marketing strategies that were not used before by the former Sprint and Nextel. For example, Sprint Nextel offered certain discounts to clients' whose initial contract obligations had expired in exchange of signing new contracts for two years.

Acquisition of the affiliates

Sprint's merger with Nextel determined Sprint to make several modifications in the company's strategy. Among the strategic changes that took place after the merger between the two companies was completed is the acquisition of some of former Sprint's affiliates. Before the merger between Sprint Corporation and Nextel Communications there was a dependence relationship between these former companies and their affiliates. These wireless affiliated companies announced their strong opposition towards this merger from the beginning. Therefore, Sprint Nextel had to acquire some of these affiliates or to renegotiate the existing agreements. In order to resolve any litigation issues between Sprint Nextel and its affiliates, the company was practically forced to acquire these companies. The first three wireless affiliate acquisitions made by Sprint Nextel in 2005 were U.S. Unwired, Gulf Coast Wireless, and IWO Holdings. Sprint Nextel Corporation also made the following important acquisitions:

Acquisition procedures followed in 2006 also. Wireless affiliate Alamosa Holdings acquisition by Sprint Nextel was completed in January 2006. Before the acquisition, Alamosa Holdings was the largest… [END OF PREVIEW] . . . READ MORE

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