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Sprint Writes Down Nextel, Posts $29.5 Billion Loss

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Sprint LogoIf you thought eBay taking a hefty writedown for its mistake — I mean Skype was shocking — then Sprint’s Nextel deal writedown is going to leave you awed. Sprint Nextel reported a $29.5 billion loss, scratched its dividend and lost 683,000 customers. The company wrote down $29.7 billion of the $36 billion it paid for Nextel in 2005.

Taking that out of the equation, the company made some money, but things aren’t all that great for Sprint. Bloomberg reports that it is the fifth-largest loss among S&P 500 companies since 1990. In other words, there have been four other disasters bigger than this.

Anyway, there is more bad news in the offering, and new CEO Dan Hesse didn’t sugarcoat anything. With 1.2 million subscribers expected to switch away from Sprint, Hesse admitted that things are going to be tough.

“The fourth-quarter financial results reflect the challenges facing our wireless business… more difficult than what I had expected to encounter…will take time to produce improved operating performance. Our near-term subscriber and financial results will continue to be pressured.” [The Washington Post]

Hesse said Sprint will be the new brand, and they will launch the QChat in the second quarter.

That said, I wonder if Sprint can be saved? Take our poll and have your say.

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16 Responses to “Sprint Writes Down Nextel, Posts $29.5 Billion Loss”

  1. louis kayser

    I don’t know anything about cell phones or wireless internets but i thought the mearger was stupid before they even joined together. No one can even act that stupid unless there is something in it for them way beneath the surface, such as huge kick backs. There should also be a huge investigation.

  2. Jesse – I would ascribe the failure to get value from the Nextel merger more to incompetence than fraud – or rather, lack of extremely talented management, since bringing off such huge acquisitions is an enormous challenge that most companies fail to rise to.

    On your entertaining idea that AT&T Wireless might have gone from the GSM global standard to iDEN, which is Motorola-only and hardly very popular – the trend even back in 2000 was that GSM was winning and gaining share against its smaller competitors including TDMA (D-AMPS), iDEN and CDMA. With the move from 3G to 4G, Verizon has now switched into the GSM camp and is adopting LTE (the evolution of the UMTS 3G standard), just like AT&T.

    As in almost every technology market, there are network effects that drive GSM as the market share leader to gain more share – there are so many GSM phone vendors out there, shipping such high volumes, that the price, features and selection in GSM handsets is really superior to the competition.

  3. Jesse Kopelman

    So, my question is whether Nextel perpetrated some sort of fraud here. Did they trick Sprint into buying a network that was being held together by duct tape and chewing gum, knowing the wheels would fall off as soon as they took it off the lot? Or did Sprint know and not really give a damn, thinking they were smart enough to fix everything before the mom found out they sold the cow for a bunch of magic beans? Was this fraud or just hubris? Being that this is a public company we’re talking about, shouldn’t some people be under investigation by Feds about now?

    Another interesting question is what would have happened if AT&T Wireless had actually acquired Nextel back in 2000. With only around 10M customers to support, the iDEN network was certainly in much better shape back then. Also, chances are that Motorola might have been able to persuade the combined company to go with some sort of iDEN evolution rather than GSM and AWS had the spectrum to do this comfortably in most markets. Without the loss iDEN, how much stronger would Motorola be today? Since the sticking point of the merger was to replace AWS management with Nextel’s superior group, chances are the combined company would have been doing quite well in 2003 and the Cingular merger would have never happened. Without that merger, what would “the new at&t” look like? Without the distraction of the Nextel merger, but the very real possibility that they could have bought Nextel’s 2.6 GHz spectrum from a disinterested AWS on the cheap, isn’t it likely that Sprint’s WiMAX network would have actually hit more inline with their original time table and scale or maybe even sooner and bigger?

  4. Curtis Carmack

    I think Sprint had better cling to WiMAX for dear life. It’s their only chance to make headway against Verizon and AT&T. If they can deliver what they are currently promising, there’s a reasonable chance that Xohm could become ubiquitous on the non-phone device side of the world. I think there is a ton of potential there. I know that I, for one, can’t wait for the successor to the Nokia N810 with WiMAX. Sprint’s more open approach should allow for the development of the long tail of devices, which would be Nirvana for us gadget nerds.

  5. While Sprint is driving cheaper pricing, there are definitely some limits to what they will do. Barry West has talked about the fact that the limited coverage and QoS are likely going to limit any widespread adoption of VoIP over WiMAX. They are going to open their network, but they arent going to destroy their existing revenue base.

  6. Writing-down the value of Nextel (and whatever else they can find to write down) is no surprise. The one time loss (which the market won’t attribute to Hesse) will make it much easier for Sprint to report earnings increases going forward, essentially making it easier for Hesse to make himself look good. Regardless of Nextel’s value to Sprint, this is a smart move (for Hesse at least)!

  7. If cheap voice is the killer app, then VOIP over WiMax has the potential to kick-start Sprint’s recovery. They announced today that dual-mode CDMA/WiMax devices will emerge by the end of the year.

    If WiMax under Sprint lives up to all the hype, other non-voice monetization vehicles such as advertising will emerge as well on a huge array of devices that will all become connected through WiMax.

    What if the Amazon Kindle becomes more than just a for-pay e-book reader? There’s great potential if the design gets kicked up a notch with the implementation of flexible LCD sheets such as the ones currently being worked on by companies like Plastic Logic. All the advertising dollars that are fleeing newspapers today needs to go somewhere other than just the Internet web page loaded on a PC.

  8. Son of Mark Klein, MD

    Om, funny you should mention M&A. I am a C-level exec at a small software firm in the Bay Area and we are evaluating a buy-out offer from a large financial institution. One of our major concerns is the impact on product development under the new organization.

    BTW I know you don’t typically cover enterprise solutions, but if you want the scoop on this…