Merger fallout

There's a downside to mergers, and Sprint is learning that lesson the hard way. Since acquiring Nextel last year, the carrier has shelled out almost half of Nextel's purchase price to buy its affiliates and assume their debt, all of which are clamoring that Sprint is violating their exclusivity agreements. Basically Sprint agreed that the only Sprint service it would offer in those affiliate-run mid-sized and small markets across the heartland would be the service of its partners themselves. But Nextel offers service in many of those markets, leading the affiliates to cry foul.

So Sprint has no choice but to buy those partners. As of last week, the count was six: five Sprint affiliates and Nextel's own affiliate, Nextel Partners. With at least two more lawsuits pending, there could be more buyouts to add to the more than $14 million Sprint has already paid. Admittedly, Sprint is getting something in exchange, new licenses, network infrastructure and millions of new customers, but what is it really gaining?

All six deals gave Sprint about 5 million new customers, compared to the 17 million customers Sprint gained after buying Nextel, but many were already customers of Sprint and Nextel through their affiliate agreements. Sprint is gaining new territory, but it already gained access to many of those affiliate markets through Nextel, which is what sparked the lawsuits in the first place. As for licenses, spectrum is always in demand, but the spectrum Sprint gained isn't in the most valuable markets, and in the areas where there is Nextel overlap, Sprint is likely doubling up on that same spectrum.

Sprint almost certainly knew this fight was coming before it initiated merger talks with Nextel. But I question if they realized what the total cost would be. When the litigation finally ends, Sprint will be looking at a far higher purchase price for Nextel than anyone expected for little additional gain. That doesn't seem like the smartest way to grow.