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Nextel Sprints into mega merger

The wallflower of telecoms gets hitched

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Sprint and Nextel confirmed that they'll merge today in a deal worth $35bn, scotching rumours of a last-minute bid by Verizon to take over its CDMA rival. Pending regulatory approval, the merger of equals will boast around 35m subscribers. The big three (including Cingular) boast nearly 130m customers between them, leaving T-Mobile a distant fourth with just over eight per cent of the US market.

Sprint will spin off its local landline business, and the two companies will merge their backhaul infrastructures.

Both parties have common roots in transportation: the older of the two, Sprint, spun off from the Southern Pacific Railroad (which gave it its name: Southern Pacific Railroad Information Network) and joined forces with venerable Bell rival United Utilities in 1986. Nextel began life in 1987 as FleetCall, providing radio to the trucking business.

Nextel has long been regarded as the wallflower of carriers, always dating but never wed, but it's been able to teach many pundits and marketing rivals a thing or two. While the tech press tends to focus on speeds, feeds and other acronym-heavy features (guilty as charged, your honour), Nextel has quietly pioneered one of the most attractive low-tech innovations in the past few years: its push-to-talk walkie-talkie service. (Nextel was also the first stateside carrier to scrap roaming charges).

And Nextel has focused its marketing on ordinary folk with a very demanding critique of technology: NASCAR families and urban kids - groups where it has an enviably high satisfaction rating. Nextel also boasts the highest ARPU (average revenue per subscriber) of any US mobile network, and the lowest churn: 1.5 per cent compared to an industry average of 2.5 per cent.

But Nextel's platform for innovation has also been its burden. The carrier opted for Motorola's iDEN technology, as opposed to the more ubiquitous global standard GSM, and the more efficient CDMA. So iDEN has never been able to enjoy the economies of scale of its rivals, and was designated a legacy technology - effectively a dead-end - by Motorola some time ago.

Analysts are already drawing up lists of winners and losers. One obvious casualty will be Motorola, as Nextel is its biggest customer. The decision to drop iDEN for CDMA will hand the number one spot in the US handset market straight to Samsung. Flarion has long been courting Nextel, hoping that the carrier would be a greenfield win for its OFDM technology.

A merger of rivals is never easy, but the largest challenge for the combined company in this fast-turnover business, as Cingular is discovering, is keeping the customer base it thinks it has. ®

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