Sprint gets the Nextel monkey off its back

Sprint Nextel is taking the first steps toward finally shedding the Nextel iDEN network, which has been nothing but a financial and operational drain on the company.

Pretty soon, the Nextel in Sprint Nextel isn't going to make much sense anymore.

Dan Hesse at Sprint headquarters today
Dan Hesse, pictured at the company's headquarters in July, has gently steered the Nextel network to its eventual end. Kent German/CNET

Sprint's Nextel network won't completely shut down until next year, but the company is already working to turn off the iDEN network. During the company's quarterly conference call today, executives laid out plans to decommission cell sites this year and talked up the financial benefits to come.

Nextel merged with Sprint in one of the most ill-advised deals in corporate history, with consequences of the disaster still apparent seven years later. Today, the company reported yet another unprofitable quarter . Nextel, which at one point had nearly as many customers as Sprint, has been nothing but a financial, operational, and strategic distraction for the company. Getting rid of Nextel gives Sprint added flexibility and marks a major step in the company's ability to truly turn itself around.

For CEO Dan Hesse, relief is in sight.

"It's a big cost drain on the company to have to run two networks," Hesse told CNET in an interview. "We're finally in a position both financially and with our network to solve that in a productive and elegant way."

But shutting down a network isn't easy, and the company is already bracing for a rocky year. Unlike last year, Hesse declined to provide any kind of expectation for contract customer growth. That's because the company is looking for a sharp increase in turnover from the Nextel side, as customers hop off a service that is either about to shut off or already out.

There are still 6.3 million customers on the Nextel iDEN network, 4.3 million of them on a contract. Many of them are still fiercely loyal to iDEN's trademark push-to-talk walkie-talkie service, potentially leaving a lot of disgruntled people looking for a new wireless home.

Plan on track
Sprint's plan to decommission the network is already off to a decent start. On Monday, the company set up a Web site that allows Nextel customers to see whether their markets would begin to lose cell sites and coverage.

Sprint executives said today that it plans to shut down 9,600 cell sites on the Nextel side, saving a significant amount on utilities, maintenance, and rent costs.

"This will be the year that is really the beginning of active migration off of the iDEN platform," Hesse said.

Sprint is expected to realize $1.2 billion to $1.5 billion in depreciated Nextel assets this year, with $450 million realized in the first quarter alone.

Sprint is eager to rid itself of the iDEN network--classified as a 2G network--and move on to a 4G LTE network under its infrastructure upgrade plan. Unlike the other carriers, Sprint has had to manage these two networks simultaneously, with little return.

So while AT&T or Verizon could move to LTE from their current 3G networks, Sprint was hobbled with managed two older networks while planning out its own roadmap.

Beyond costs, Nextel was Sprint's largest source of customer defection. So no matter the improvement in the core Sprint service, the company as a whole would continue to report customer losses, particularly on the contract side. That changed in the fourth quarter, when the gains from Sprint and its newly acquired iPhone overpowered the losses at Nextel.

End of an era
Nextel's end would mark a concluding chapter in one of the worst mergers in history.

Sprint and Nextel announced in 2004 their intent to merge, and ultimately closed the transaction a year later. The deal was presented as a merger of equals, something that rarely works out, and included two headquarters in Reston, Va., and Overland Park, Kan. Executives attempted to merge clashing corporate cultures, with Sprint employees often winning out.

The management team, then led by CEO Gary Forsee, bungled the integration effort and realized there was no easy way to merge Sprint's CDMA network with Nextel's iDEN network.

The Sprint bias showed itself in investment in the service, with Sprint getting much of the capital improvements at the expense of deteriorating service on the Nextel end. Former Nextel executives have long privately bemoaned the quick fall of what had been the nation's fourth-largest service before the merger.

When CEO Dan Hesse took over in late 2007, the company was a mess. He put resources back into the Nextel network, focusing on improving service while also bulking up the company's customer-care operations. He also used Nextel's excess capacity to power its prepaid service. But 2010, Hesse announced the network would be shut off for good.

A land grab for Nextel customers
While the subscriber base for Nextel's service is shrinking, it's rabidly loyal. New Nextel phones are among the products that garner the most comments and questions from customers. These are customers who have stuck with a 2G network primarily because of the walkie-talkie function.

That loyalty to Sprint Nextel overall will be tested once the company begins to approach customers to get them off of the service. The customer defection will mark a land grab of sorts as rival carriers--and Sprint itself--works to pick up consumers looking for a new service provider.

Hesse believes Sprint can pick up more than its fair share of departing Nextel customers.

His biggest asset: the recently released Sprint Direct Connect service, a push-to-talk function on Sprint's network that the company believes is comparable to Nextel's trademark feature. Sprint previously attempted to offer a CDMA phone with push-to-talk capabilities, but it was deemed too slow and didn't draw in many takers.

Hesse said he is convinced it will work, and said he wouldn't have felt comfortable decommissioning the iDEN network if the company didn't have Sprint Direct Connect in place.

"We think we have an advantage in catching that customer base," Hesse said. "We expect to win more than our share of customers up for grabs.

With Sprint still far behind larger rivals Verizon Wireless and AT&T, Hesse better be right.

 

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