Sprint's Nextel nightmare lingers

The wireless operator is being forced to divest some of its Nextel assets as it struggles to get back on track with even more cost cutting.

Sprint continues to be haunted by its $35 billion acquisition of Nextel Communications in 2005 as the company is forced to divest some of its Nextel network and is still struggling to get its finances back on track.

On Wednesday, the Supreme Court of Illinois upheld a lower court's ruling that Sprint must stop owning, operating, and managing its Nextel iDEN network in Sprint affiliate iPCS's territory. But the court also extended the time line Sprint has for divesting itself from this market from 180 days to 360 days.

Sprint Nextel

Basically, the two courts agreed with iPCS that Sprint was violating its agreement with iPCS by operating the Nextel network in the iPCS territory. Nextel had already been operating in iPCS's territory before Sprint bought the company in 2005. The agreement between Sprint and iPCS precludes Sprint from operating a competing wireless service in its territory. So once the merger was complete, Sprint was in violation of its agreement, iPCS argued.

Now Sprint must either work out a deal with iPCS or with some other wireless operator in order to continue serving its roughly 500,000 iDEN customers in the iPCS territory.

Sprint spokesman Matt Sullivan said the ruling was expected and his company is working to ensure that service won't be interrupted.

"Our current customers don't need to take any action," he said. "We remain committed to providing them service. We have been considering these issues for a long time, and we will be providing more details to customers later."

Sprint's merger with Nextel has been blamed for many of the problems facing the wireless operator today. The company has been steadily losing customers for several quarters , including a net loss of about 1.3 million customers in the third quarter of 2008. Sprint also posted a quarterly loss of $326 million, or 11 cents a share. A year earlier the company had a profit of $64 million, or two cents a share. Revenue also fell about 12 percent to $8.82 billion from $10.04 billion a year earlier.

For the past year, Sprint has been trying to regain its footing. The company hired a new CEO and has begun an aggressive campaign to improve its customer service. But the Nextel merger and the troubles associated with it still linger. Earlier this year Sprint tried to sell the Nextel business, but the weak economy has made that prospect next to impossible .

Now as the economy worsens, Sprint executives have said they expect a few speed bumps on their road to recovery. Specifically, they expect to see an increase in defaults in service plans and continued declines in subscribers, who sign long-term contracts, as well as declining revenue on a per user basis.

In an effort to get its finances back on track, Sprint has been cutting costs. For example, the company saved about $15.5 million during the most recent quarter by freezing office supply purchases. It's also slashed spending on travel, reducing on a monthly basis the number of employees traveling by about 63 percent. This effort has saved the company about $7.5 million in airfare alone from January to September, spokesman James Fisher said.

In its latest attempt to cut costs, Sprint began on Thursday offering some employees a volunteer severance package. The buyout only applies to employees who have non-customer facing jobs. Eligible employees can apply for the severance starting today and have until December 3 to put in their request. At that point, Sprint will review applications and let employees know if they're request has been accepted. The severance package being offered includes eight weeks of full pay, plus an additional two-weeks of pay for every year an employee has worked for the company.

Fisher said the company doesn't have a specific goal in terms of how much money it expects to save with the buyout or even how many employees it hopes will take the package. He also emphasized that the program is just one of many things the company is doing to reduce costs.

"We have been cutting back in various ways for the better part of this year," he said. "So this is just part of our ongoing attempts to save as much as we can without impacting the service we provide to customers."

 

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