You can’t understand the proposed Sprint-Nextel merger without the Paradox of the Best Network as your context.
Nextel have been doing successful trials of Flarion’s FLASH-OFDM technology. As I’ve said before this changes the rules of wireless. But Nextel then have to work out how to monetise the thing: either you run the network as a user utopia and struggle to make a profit, or as a totalitarian thugocracy where you monitor every move and punish the slightest deviance. Neither is attractive.
So Nextel’s stock is probably about as far as it’s going to go. A merger reduces the amount of market competition and hence gives everyone a good stock uplift instead. Oh, and all the execs get to cash out. (Remember stock prices fundamenally reflect profit, not revenue: a small increase in prices results in a much larger increase in profit and stock price. And if you think these corporations are run for the primary benefit of stockholders, you need to read this.)
Sprint has a local wireline footprint of only 5% of the US market. But that’s the bit of the company that pays the bills. It’s a free-rider on the lobbying excellence of the Baby Bells, and is amazingly profitable. The rest of Sprint would probably kick out unglamorous unionised and regulated local part if it wasn’t for the fact that investment decisions would then all need external capital and justification.
Between Nextel and Sprint they control 90% of the 2.6GHz MMDS spectrum in the US. They’ve dithered for years over what to do with this, and written down the asset by the odd billion or two over the same period. The synergy of this deal is not that they will deploy in this area because of their combined footprint, but that they won’t. My guess is that the MMDS spectrum will be kept in the cupboard behind the stationery supplies in HQ for the forseeable future.
The combined entity will end up on Qualcomm’s EV-DO path because it’s laggy and the reverse link sucks. Forget one-off examples of doing VoIP on 1xRTT or EV-DO. If all your friends, colleagues and neighbours do it too you’ll only get to talk at 3am standing right under the cell tower. The lack of scaleability for VoIP self-limits the stupid network threat.
The danger is anyone actually deploying a nationwide wireless stupid network. Then everyone else would have to follow, and into the abyss we all go.
You should take all my 20:20 hindsight with a cellar of salt, as I sold out at 19, and the stock’s now almost 25 (although the dollar’s down 10% too, which is in my favour).
From a purely tactical viewpoint it will be interesting to see how Verizon and Vodafone act. An attempt by Verizon to buy Sprint or Nextel won’t get past the regulatory hudles, but then maybe that’s the point — just bid up the deal cost and at worst have to pay a few hundred million to keep the lawyers busy for a year or two with no real danger of having to follow through. And if a raider was going to buy and dismember Sprint they should have done it a year or more ago while the stock was down.
Posted by Martin Geddes at 12:13 PMTrackBack URL for this entry:
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I thought they also announced that they are unbundling the local loop in an IPO? This would suggest that the execs will all hang around until they can cash in the benefits of selling the family jewels.
Posted by: at December 29, 2004 09:43 PM