Sprint had little choice but commit to Nextel

Sprint is hailing the FCC’s lenience toward Sprint over vacating its Nextel spectrum as an opportunity to rejuvenate its iDen network. Given 18 months to retune the 800-MHz network, Sprint said after careful review of the iDEN business it has decided to reinvest in Nextel and Boost Mobile and has signed a new deal with Motorola to support and upgrade the network. But what Sprint is calling an opportunity may just be simply the result of stalemate. According to analysts, Sprint can’t sell Nextel in the current tight capital market, and it can’t simply shut it down, so it is forced to keep running the legacy network despite its drain on Sprint’s customer base and profits.

Sprint was basically handed lemons, Bernstein Research Senior Analyst Craig Moffett said in a research note. “Absent a shutdown strategy, Sprint is left to make lemonade, making the best of the iDEN network.”

At the time of the 2005 merger with Sprint, Nextel had 17.8 million customers on its iDEN network. That number has fallen to 14.6 million in the last 3 years, despite the rest of the industry experiencing unprecedented growth in subscribers. In addition, a good deal of Nextel’s customer base has shifted from high-dollar business users to pre-paid users on the Boost network, making it a major contributor to Sprint’s recent losses of valuable post-paid subscribers.

Nextel’s future prospects, even with a new surge in investment in its brand and network, are also questionable. Nextel and Boost’s primary differentiator, their industry-leading push-to-talk service, now has legitimate challengers in the market in Verizon Wireless and other operators, while Sprint has replicated PTT capabilities on its CDMA network. Even if the iDEN network maintains its technological edge against competitors, the service may not provide much opportunity for future growth. After a huge growth period targeting the blue-collar vertical markets, push-to-talk has failed to penetrate the consumer and general business user markets as many predicted.

“Originally hailed as a must-have feature for dispatchers, fleets and small enterprise customers, it may be instead that iDEN's primary application was nothing more than price arbitrage,” Moffett said. “That is, a way to take calls off-net to reduce monthly bills for super-heavy users.” Now that inexpensive unlimited calling and texting plans are readily available to businesses, push-to-talk’s utility isn’t so obvious, Moffett said.