Sprint Corporation - History - Merger of Sprint Corporation and Nextel Communications

Merger of Sprint Corporation and Nextel Communications

On December 15, 2004, Sprint Corporation and Nextel Communications announced they would merge to form Sprint Nextel Corporation. While billed as a merger of equals, the merger was transacted as purchase of Nextel Communications by Sprint Corporation for tax reasons; Sprint purchased 50.1% of Nextel. At the time of the merger announcement, Sprint and Nextel were the third and fifth leading providers in the U.S. mobile phone industry, respectively.

Sprint shareholders approved the merger on July 13, 2005. The merger deal was approved by the Federal Communications Commission (FCC) and U.S. Department of Justice on August 3, 2005. The FCC approved the merger on the condition that Sprint Nextel was to provide wireless service via the 2.5 GHz band within four years. Sprint Nextel was officially formed on August 12, 2005, when the deal was completed.

Sprint and Nextel both faced opposition to the merger, mostly from regional affiliates that provided wireless services on behalf of the companies. These regional affiliates felt that the new company would be violating non-compete agreements that the former companies had made with the affiliates.

On September 1, 2005, Sprint Nextel combined plan offerings of its Sprint and Nextel brands to bring more uniformity across the company's offerings.

Nextel has licensed its identity to NII Holdings, Inc., of which Sprint Nextel owned 18%. NII Has used the Nextel brand to set up networks in many Latin American countries. Following Sprint's purchase of Nextel, Nextel sold all of its investment in NII Holdings.

The integration process was difficult due to disparate network technologies. Sprint initially tried to address this with the advent of Powersource phones. These phones routed voice call and data services over Sprint's PCS spectrum, while maintaining DirectConnect services over 800 MHz spectrum. However, this was not sufficient in coverage, due to the inability to roam on non-PCS spectrum. Soon after the merger, top Nextel Executives began leaving the company immediately after the merger closed. Tim Donahue, Nextel CEO, stayed on as executive chairman, but ceded decision-making authority to Gary D. Forsee. Tom Kelly, COO of Nextel, took an interim staff position as Chief Strategy Officer. Two years after the merger, only a few key Nextel executives remained, with many former Nextel middle- and upper-level managers having left, citing reasons including unbridgeable cultural difference between the two companies.

In 2006, Sprint spun-off its local telephone operations, including the former United Telephone companies and Centel, as Embarq.

Sprint's acquisition of Nextel ultimately was a disaster from a fiscal standpoint – in 2008, the company wrote down $29.7 billion of the $36 billion sum it had paid for Nextel in 2005, wiping out 80% of the value of Nextel at the time it had been acquired. The write down reflected the depreciation in Nextel's goodwill since the date of acquisition.