The rumor mill is grinding out opinions on three possible mergers.
Are any of them worth a grain of salt?
When stocks go down, rumors of mergers and takeovers take flight. In this latest downturn, the two getting the most play are that the Verizon/Alltel deal might not go down as planned or that Verizon might pay the penalty and then try for a less expensive deal. Meanwhile, the yearly rumors about Microsoft buying RIM are back in full bloom because of the recent turmoil on Wall Street.
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Andy Seybold
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IDEN ON THE BLOCK
And then there’s Nextel. Sprint says it’s up for sale, or not, and that Nextel fits into its long-range plans, or not. But this is not a great time to be selling off a network, especially one that has some major issues.
Yes, Nextel’s push-to-talk customer base is dwindling fairly rapidly, but the biggest issue is that it’s still in the middle of rebanding – which is costing more money and taking far more time than expected. When Sprint merged with or bought Nextel (pick one), the plan was to start migrating push-to-talk customers to the Sprint EV-DO network using QChat and bridging the networks so people could use either Nextel or Sprint phones.
After 2010, everyone would have transitioned to Sprint, the rebanding would have been completed and the 850 MHz spectrum would be contiguous, not spread out over the band. CDMA would be deployed in place of iDEN and Sprint would be able to add the 850 MHz band to its 1900 MHz CDMA system for better coverage using fewer sites.
This plan would have worked to Sprint’s advantage and certainly would have increased its value. However, there have been delays in the rebanding. The last I heard the estimated final date will be 2012, a slippage of two years. The costs will be $1 billion or so higher than anticipated.
CHALLENGING SPRINT
Sprint is trying to return to a position of strength, or at least to where Wall Street is once again excited about the company, so Nextel might end up being sold off. Sprint has its hands full with the CDMA network, getting customers back and keeping them happy. It’s rolling out its Xohm WiMAX network, first in Baltimore and then in other cities, but soon Xohm will be part of Clearwire (Sprint retains 51% ownership) and it’s anyone’s guess when or if Clearwire will show a profit.
Also of interest is what will happen to QChat, the Qualcomm/Nextel push-to-talk service being rolled out on Sprint. If Nextel is not a part of Sprint, at least in theory, Sprint no longer would have the right to use QChat (by a previous agreement between Nextel and Qualcomm) and Sprint could be the only one of the big four networks without a push-to-talk offering.
DRIVING FORCES
In all of these mergers, sell-offs and buy-ups, it’s curious how little the executives who run these companies will ultimately have to say in determining their fate. Their stockholders and boards of directors will make the decisions.
The problem is that if Microsoft were to go after RIM, for example, it might be a good thing for the stockholders in the short term, but I have to think it would be bad for RIM in the long run. It would certainly change the landscape. I have a real problem envisioning a RIM BlackBerry running Windows Mobile 7.X.
The Verizon/Alltel deal is fraught with the same issues, but it’s the logical expansion of the second largest U.S. network (making it No. 1 again). It is the marriage of two networks that share the same technology, the same backend suppliers and a lot of synergy. I don’t see the same synergy between Sprint and Nextel, nor between Microsoft and RIM.
If you look at past mergers and acquisitions in the wireless industry, you’ll see that not many of them have been of the 1+1=3 type. Instead, many have ended up as 1+1= 1.5 deals or worse. Entire companies have been swallowed up by larger companies only to have both the technology and the people who made the smaller company interesting simply disappear into the night.
Mergers and acquisitions are difficult enough to figure out, but I believe any initiated during these turbulent economic times probably won’t be marriages made in heaven.
A RIM/Microsoft deal or someone buying Nextel from Sprint will likely have a tough time of it. On the other hand, I hope these hard times don’t slow Verizon’s purchase of Alltel.
When the smoke clears again and stocks go back up, those left standing will be in great shape for the future.
Seybold heads Andrew Seybold, Inc., which provides consulting, educational and publishing services. For more information, visit www.andrewseybold.com.
