Sprint Bidding Adieu to Nextel
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sprint (NYSE: S) proposes to put up the shutters for its push-to-talk network as early as June 2013. The third largest US carrier desires to close down its 2G Nextel network as part of its ongoing 4G LTE rollout. Sprint had bought Nextel spending $35 billion way back in 2005 which proved a disastrous decision for the Kansas carrier.
Sprint’s network runs on a different technology than Nextel’s, raising incompatibility issues and making it difficult to use the wireless infrastructure. The combined entity struggled amidst intense competition while managing the cost burden of maintaining two totally different wireless technologies clubbed with poor data speed. For the past 4 years Sprint has been somehow managing to run the heavy cost of the two incompatible network.
Finally the carrier has taken the call of closing the Nextel chapter.
Reason to ditch Nextel
The deactivation of the Nextel network will help Sprint to save a lot on costs which it incurs to deal with the incompatible technology. The flat cost of operating this network totaled to $350 million for the first quarter ending March. The shutdown is going to allow Sprint to do away with its complex network with Nextel, and concentrate on the LTE rollout.
Also, Nextel’s archaic 2G network run tremendously slow and so does not fit the requirement of smartphones. The iDEN system provides a downstream speed of less than 100 Kbps compared to a speed of multiple megabits per second offered by Sprint’s existing 4G technology, the LTE and WiMax, which is supplied by Clearwire (NASDAQ: CLWR).
Finally, one of the key benefits that Sprint would get from ending the service is the availability of some valuable spectrum. Shutting down the iDEN would free up spectrum in the 800 MHz space. These airwaves will be used by the wireless provider for its 4G LTE network to catch up with Verizon’s (NYSE: VZ) and AT&T’s (NYSE: T) LTE rollout. Presently, Sprint is using another spectrum band to launch its LTE services in the middle of this year. The company plans to use up the freed up 800 MHz frequencies later to expand the LTE network.
Other than this, there is another relieving news for the wireless operator.
Credit for network building
The carrier has arranged finance to fund the purchase of equipments for the network building. It got the approval of a $1 billion line of credit for the purchase of equipment for the LTE network construction. The loan has been provided by Deutsche Bank AG of Germany, which leads the consortium of banks. The credit line is also backed by the Swedish government as one of Sprint’s equipment vendors is Sweden’s Ericsson.
Sprint is shutting down the disastrous Nextel, arranging valuable spectrum from it and securing a line of credit for its network development. However, the shunning of Nextel network won’t be that easy.
What’s the challenge?
There are about 5.4 million iDEN network customers of which 3.8 million are post paid users. Majority of these users are businesses and government agencies who provide the phones to their construction employees and mobile workers. The challenge that Sprint is facing is that of transitioning these customers to its own network rather than their rivals’. The company is making efforts to convert customers from the Nextel network to its 3G network. It has already introduced four ruggedized handsets with push to talk features to lure them.
My takeaway
Doing away with the Nextel brand is part of the plan of Sprint’s ‘network vision’. The company seeks to simplify its network and in the process, free up the precious airwaves to upgrade its network technology for meeting the rising wireless data demand. Sprint endeavors to make a mark and says bye to Nextel for better days ahead.
liveinvestor has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
