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The short-term outlook for Nextels enterprise customers under new, combined Sprint-Nextel management could prove difficult. But in the long term, the merger signals a new level of data service for the enterprise as Nextel moves its enterprise customer base from its aging IDEN (Integrated Digital Enhanced Network) to Sprints CDMA (Code Division Multiple Access) system.
“Obviously theres going to be a bit of upheaval, as there is with every merger,” said Michael King, principal analyst at Gartner, adding, “its probably a good thing for the long-term viability of both companies.”
As a result of the merger, Sprint gains a focused, vertical sales force that Nextel has arranged along industry lines. In addition to knowing the Nextel offerings, said King, sales team members also understand the issues facing specific vertical issues, the tools they currently use and their data needs.
For Nextel, he said, that has produced the industrys highest penetration of data users and highest penetration of enterprise users.
The merged companys ability to keep those enterprise customers will be a test of its mettle.
“The enterprise has to view this long term with some trepidation,” said Lance Wilson, director of wireless research at ABI Research.
As a Nextel customer himself, Wilson said he has observed the superb customer service and technical support that enterprise customers demand. “You dont wait on the line 40 minutes to talk to somebody. Its a different philosophy and a different culture of doing business [from Sprints consumer-focused service], and its geared to people and enterprises where time is of the essence—where time is money, in other words.
“Unless the Nextel customer can perceive a service level that is differentiated from that of the consumer-driven Sprint service, then that customer is up for grabs,” Wilson said.
Transitioning customers from Nextels IDEN network to Sprints high-speed CDMA network poses other challenges.
“Ultimately, integration is going to be kind of a problem,” Wilson said. “What are they going to do about handsets?”
A large portion of Nextels line of handsets are geared toward heavy-duty, outdoor use and are designed for construction, mining, electrical and industrial environments. Those functions will have to be replicated in Sprints offerings in order to retain Nextels enterprise customer base.
“That certainly can be done, but that just adds to things they have to do,” Wilson said.
Next Page: Gaining more bandwidth.
Bandwidth
DeWayne Nelon, CEO of LogicaCMG Wireless Networks in North America, said the move to a CDMA network will make the transition worthwhile for the enterprise. LogicaCMG is an international IT systems integrator with a large presence in the telecom market, particularly in the area of immediate and store-and-forward text messaging.
The chief benefit for the enterprise, Nelon said, will be the additional bandwidth with the data rates up to 400 kbps that CDMA provides. The Motorola IDEN network supports data rates of about 100 kbps.
“If youre an enterprise customer, you just cant get the bandwidth from that,” Nelon said. “Nextel would have to do something, even without this merger, to upgrade their network.”
LogicaCMG has developed and deployed a variety of wireless telecom solutions, including direct delivery and store-and-forward text messaging.
“Every one of Nextels handsets will have to be replaced,” Nelon said, noting that the company would have to do that anyway in upgrading its network to higher data rates. “Its not an inexpensive proposition,” he said, “but the merger gives them an easier path to get to where they needed to be.”
One challenge in the upgrade will be to preserve Nextels popular push-to-talk features. “The push-to-talk feature has been a sticky item for Nextel. Its a feature people dont want to give up,” Nelon said, adding that the companies will have to make sure that the feature can continue to be supported through the transition “in a way that is palatable.”
Prior to the announcement of the Sprint-Nextel merger, the two companies were talking and rumors were flying that Verizon might buy Sprint. But few analysts expect that a Verizon-Sprint merger could happen anytime soon.
“Verizon has very little to gain by merging with Sprint,” King said. “I doubt that its very likely their overtures will continue, just because its too large a pill to swallow and there are too many implications around monopolistic intentions. It would be difficult now to make an argument for a merger in front of the FCC [Federal Communications Commission] or the FTC [Federal Trade Commission].”
Wilson, too, said he views a Verizon-Sprint merger as “highly problematical.”
“One merger is difficult enough,” he said. “How could you execute two serially? And I have to believe the regulators would go absolutely apoplectic on a Verizon-Sprint-Nextel merger.”
Such a merger would bring competition down to three major companies—Verizon, Cingular-AT&T Wireless, and Sprint Nextel. “I dont think anyone wants to see a wireless version of the old Bell system being replicated in the U.S.,” Wilson said, “and thats essentially what you would have.”
Despite recent merger mania, the FCC continues to examine proposals to break telecom giants into pieces to promote competition. Under the mandate of the Telecommunications Act of 1996, the agency is required to develop a plan to have major carriers unbundle elements of their networks and lease parts to competitors.
The FCC has put together three plans, all of which have been nixed by the courts. Coincidental with the Sprint-Nextel merger, the issue was back on the agencys agenda at its meeting Wednesday.
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