Another Blow to Sprint Nextel

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Xohm Control and the Nextel Factor

While the partnership with Clearwire might please shareholders, some analysts have questioned the wisdom of sacrificing full control of Xohm. Many believe high-speed mobile Internet delivery is the way forward for Sprint. By sharing technology and management with some of the very players Sprint needs to compete with for customers, Sprint is effectively ceding a substantial competitive advantage that could have extended for two or more years. "WiMAX would help them compete very well, but not everyone sees it that way," says ABI Research analyst Philip Solis. "They see WiMAX as just another network, but it's Sprint's future that they're mortgaging to resolve the financial pressure in the current core business."

Then again, the question of who controls Xohm would be moot if Sprint is snapped up by Deutsche Telekom (DT), which is said to be mulling an acquisition (BusinessWeek.com, 5/5/08). That deal would face high regulatory hurdles in the U.S. and wouldn't be easy for the new parent to execute, given the incompatible technologies at Sprint and Deutsche Telekom's existing U.S. business, T-Mobile USA.

It's also unclear whether the deliberations to sell or spin off Nextel will amount to anything given the rapid defection of subscribers frustrated by network and other customer-service woes. According to The Wall Street Journal, a company started by a Nextel co-founder is trying to assemble a consortium to buy Nextel as part of a plan to create a nationwide network for public safety communications. Alternatively, Nextel could be sold to a private equity firm, the report said, suggesting a smaller Sprint would become a more attractive takeover target for a company such as Deutsche Telekom.

Off With Customers

Nextel isn't the only side of Sprint's business that's ailing. In dumping Sprint as its cellular provider, Qwest will be taking away a sizable chunk of Sprint's customer base. While the latest customer figures are not yet available, Qwest had 824,000 wireless subscribers at the end of 2007, representing more than 1.5% of Sprint's base of 53.8 million. Neither Qwest nor Sprint has reported first-quarter results yet.

Sprint's overall customer base grew in 2007, but that's only because it replaced departing subscribers with customers who prepay for their service and generally rack up far lower monthly charges.

Comparing Deals

Qwest's five-year deal with Verizon Wireless, a joint venture of Verizon Communications (VZ) and Vodafone (VOD), would be different in several ways from the Sprint deal. Instead of tacking its own name on the phones and service, as it has with Sprint, Qwest plans to begin marketing Verizon-branded service this summer.

And in sharp contrast with the Sprint deal, which denied Qwest access to the high-end handsets that Sprint users can choose from, Qwest customers will have access to the full line of Verizon Wireless handsets, smartphones, and BlackBerry (RIMM) devices. Qwest's customers will be able to choose direct billing by Verizon Wireless or to include those charges on their residential phone and broadband bills.

Sprint did not immediately respond to requests for comment on the Qwest deal. Sprint spokeswoman Leigh Horner declined comment on the reports about the possible Nextel spin-off and the potential Deutsche Telekom bid for all of Sprint Nextel.

Meyerson is Deputy Technology Editor for BusinessWeek.com. Edwards is a correspondent in BusinessWeek's Silicon Valley bureau.