Sprint Corp. and Nextel Communications Inc., No. 3 and No. 5 U.S. cell phone companies, may soon be expected to join their efforts in the mobile phone industry merging to create a company with 33 million customers and joined market value of about $35 billion.
The merger could help Sprint get closer to the No.2 in the market Verizon Wireless with 42 million customers. The combined company could have as many as 39 million customers.
The deal could help both companies to slash costs by merging overlapping operations. The deal however could lead to some technological problems due to the incompatible wireless systems used in the companies’ networks.
The deal could jeopardize the prospects of Motorola that may lose exclusive deal to supply phones and equipment to Nextel opening up new possibilities for Lucent Technologies and Nortel Networks. The merger is likely to force Nextel to abandon its iDEN technology asking customers to turn in their handsets.
A lot of analysts have noted the incompatibility of the technologies used by the two companies. Sprint is likely to force former Nextel customers to use its C.D.M.A., or code division multiple access technology.
The advantage for both companies will be the diversification of their customer base. At the moment, Nextel positions itself at the high end of the market, while Sprint is focused on the mass market including families and teenagers.
Sprint Chairman and Chief Executive Gary Forsee is believed to become chief executive of the combined company, and Nextel Chief Executive Tim Donahue could make executive chairman, splitting the board of the directors between the two companies in even proportions.
Currently the two wireless giants are said to be discussing the deal where Sprint would pay 1.3 shares of Sprint stock for each share of Nextel, with the value of the offer coming up to $36.3 billion.
The boards of Nextel and Sprint will meet Tuesday.
There are also rumors that Verizon or its U.K.-based partner Vodafone could make an offer for Nextel or even Sprint, though such a transaction would most definitely be prohibited by anti-trust regulators.