Third Largest U.S. Cell Phone Company Created

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Executives from Sprint and Nextel Communications have announced a definitive agreement to merge their two companies and create the third-largest U.S. mobile phone company.

Sprint Chief Executive Officer Gary Forsee and Timothy Donahue, the CEO of Nextel, trumpeted the strength and promise of the new company, to be called Sprint Nextel. The merged company will have a combined equity value of approximately $70 billion, more than 35 million wireless subscribers and a network covering an area of almost 262 million people.

The merger will also result in the spinoff of Sprint's local phone business into a separate company.

Addressing an audience of investment industry insiders and media, Nextel's Donahue called the combined company the "future of communications," and said that joining his company to Sprint will create a new telecommunications powerhouse, with spectrum rights, product portfolios, and distribution networks that will allow it to compete with companies such as Verizon Communications and Cingular Wireless, which recently merged with AT&T Wireless Services.

Forsee will take over as CEO of the combined company, with Donahue acting as executive chairman. Further underscoring the theme of a "merger of equals," the company will also maintain its operational headquarters in Reston, Virginia, current home to Nextel, and an executive headquarters in Sprint's home of Overland Park, Kansas, Donahue said.

Layoffs Expected

Both Forsee and Donahue made it clear that staff reductions would be unavoidable as the companies combine their operations and networks following regulatory approval of the merger, which is expected in the first six months of 2005.

While he declined to discuss details of where cuts might come, Forsee said that the company will work to eliminate overlaps between the two organizations and that it wouldn't make sense to move "thousands of employees" between Kansas and Reston, or Reston and Kansas.

According to Forsee, 22,000 employees who work with Sprint's local phone business will leave the merged company to work for that newly created entity.

Sprint Nextel also expects to realize huge savings by consolidating information technology as well as sales, marketing, and administrative organizations. It will also try to extract better deals from suppliers by leveraging the company's increased size, Forsee said.

Total savings to the company through those "synergies" could total $12 billion, the executives said.

Possible Opportunities

Executives from both companies spoke enthusiastically about the opportunities created by combining the two companies, especially with Nextel's strength in innovative voice services, like the popular "push to talk" feature, and Sprint's strength in Internet and data services.

Following regulatory approval, the combined company will begin to merge the companies' networks, looking for collocation opportunities where they exist, and making sure that Nextel customers can receive service from Sprint's cell network, and vice versa, Forsee said.

A longer-term project will be migrating Nextel customers and the two-way radio "push to talk" feature from the company's network, which uses Motorola's Integrated Digital Enhanced Network, to Sprint's network, which uses Code Division Multiple Accesstechnology, the executives said.

Sprint Nextel will continue to invest in and grow its iDEN network through 2007, and is looking at opportunities to market it to governments and public safety organizations, which make heavy use of the "push-to-talk" capability, Donahue said.

In the short term, the companies are working with Motorola to offer their customers a dual-mode phone that supports both iDEN push-to-talk and CDMA, Donahue said.

Sprint will work aggressively with federal and state regulators to win approval for the spinoff of its local telecom business and to make sure that the new company has the cash and capital resources to be successful, Forsee said.

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