Now For A Little Bad News From Sprint (S): Verizon Wireless Takes Qwest (Q) Contract

Telecom & Wireless

Published: May 6, 2008 5:25 am

All of the rumored good news out of Sprint (S) took the stock on a magic carpet ride yesterday. First there were reports that Deutsche Telekom (DT) might buy the whole company. Then there were rumors Sprint might spin-off its failing NexTel division. It is not clear why anyone would want it, but that is beside the point.

Now word comes that Verizon Wireless, a joint venture of Verizon (VZ) and Vodafone (VOD), has gotten the franchise to sell wireless service to all of Qwest’s (Q) customers. Qwest is a big phone company which covers fourteen states, but it does not have a cellular service business of its own. That Qwest franchise has a substantial value because of the number of landline customers the company serves.

According to The Wall Street Journal "A Sprint spokeswoman said the carrier was "disappointed that Qwest has chosen this path" but said it would remain focused on its wireless partners and continue to evaluate opportunities in that space."

The news may be very good for Verizon Wireless in its race with AT&T (T) Wireless to be the No.1 wireless provider in the US, but the announcement may have more of an effect on Sprint. The company is just now starting to shed the perception that it can never do anything right. Since its merger with NexTel customer service has been so bad that the company has not been about to grow while its rivals add more subscribers each quarter.

The Qwest news reopens the question of why DT would want to buy Sprint. Its 50 million customers are certainly attractive. Added to the DT US wireless operation T-Mobile, it would create the largest cellular provider in the US. But, how can a company based in Germany and with a relatively small US operation fix Sprint’s problems and take the two operations through a complex merger.

Similar issues face any company which takes the NexTel part of Sprint’s business. Many Sprint executives and Wall St. analysts blame the NexTel part of the business for most of the execution problems that trouble Sprint’s operations.

Sprint/NexTel and NexTel are not worth buying. The problems that go with the firms and their customer bases are overwhelming and would vex even the most seasoned telecom management.

Douglas A. McIntyre

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