T-Mobile (TMUS, Financial) and Sprint (S, Financial) are taking effective steps to avoid the disaster of Sprint and the Nextel merger deal that happened back in 2005. Customers are worried that the $26 billion proposed deal between the third- and fourth-largest national carriers will cause the kind of inconvenience they suffered when Sprint joined forces with Nextel, which had a network that used a different technology.
Nextel havoc won’t repeat
In 2005, Sprint had acquired Nextel, which used totally different network and technology. Sprint took as much as eight years to get acquainted with Nextel’s spectrum and put it to use. This was a terrible experience for the company, as well as its customers. These memories have been revived with the proposed Sprint and T-Mobile merger as both the carriers use different technologies.
Besides investing years, Sprint also had to pour in billions of dollars to wind down Nextel’s iDEN system, which is well-known for the push-to-talk phones. This was imperative so that all subscribers could take calls on Sprint’s network. However, Sprint had to pay a heavy cost, losing more than 10 million customers during the process. Business customers who were dependent on iDEN phones were not ready to move to the high-speed data network.
A part of Sprint’s past difficulties also developed from the fragmentary development of wireless networks in the U.S. in early 2000s. When Sprint and Verizon (VZ, Financial) were using the CDMA networks, AT&T (T, Financial) and T-Mobile were on GSM, a technology that was highly favored in Europe and major parts of Asia. But this was later replaced by the next-generation “long-term evolution” (LTE) technology, making data handling much easier for customers, particularly when they switched to other providers.
The U.S. chip maker Qualcomm (QCOM, Financial) developed the CDMA technology to make phone calls much ahead of the advent of internet data. However, the CDMA network will have to be changed post the T-Mobile and Sprint merger and it will go on LTE, thereby doing away with the legacy voice networks. Evidently, both Sprint and T-Mobile are promising customers that their combination won’t repeat what happened a decade ago.
The promises
Both Sprint and T-Mobile have started implementing effective steps to facilitate their potential merger. One of the arrangements include T-Mobile’s new roaming agreement with Sprint that will allow the latter’s customers to roam on T-Mobile’s network for the next four years. This agreement would stay valid regardless of the merger.
T-Mobile has planned the shift of Sprint customers to its own network. As per T-Mobile, around 20 million Sprint subscribers, which is around half of Sprint’s total customer base, have handsets that can run on T-Mobile’s network after the merger. In contrast, during the Sprint and Nextel merger, none of Nextel’s customers’ phone could work on Sprint’s network. But today, all carriers use LTE technology, which makes the combination much easier. Technology has come way ahead of what it was 13 years ago when Sprint purchased Nextel. T-Mobile. CEO Mike Sievert said:
“For our customers, this story is purely good…There’s nothing they have to do. They don’t have to get a new handset. They don’t have to change anything.”
However, a portion of Sprint customers holding devices that rely on the CDMA technology for voice calls will have to be assisted. T-Mobile said that these users will ultimately be required to move to new phones. T-Mobile is in some way experienced in this through its MetroPCS acquisition, where those customers ran on a CDMA-based network. This would be quite useful during the impending merger.
Disclosure: I do not hold any position in any stocks mentioned in this article.
