Sprint Nextel (NYSE:S)
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Sprint Nextel Corp. (S) plans to shut down its push-to-talk network as soon as June 2013 as part of an ongoing network upgrade, a move that will remove the remaining parts of Nextel from its operations.
Sprint spent $35 billion to buy Nextel in 2005, a purchase that has proven disastrous. The combined company struggled in the hotly competitive wireless market under the weight of maintaining multiple wireless technologies. Sprint dismissed much of the deal in a $29.7 billion goodwill write-down and hasn't posted a full-year profit since 2006.
Previously, Sprint had said it would support the network--known as iDEN--into 2013. Ending the service enables the company to use the airwaves for more advanced services, such as the high-speed mobile broadband network known as 4G LTE.
"The main thing is freeing up the spectrum," said Stifel Nicolaus analyst Christopher King, who had expected the iDEN network to be shuttered by the end of 2013.
The move comes after last week's ruling from the Federal Communications Commission that allows the Overland, Kan., telecom company to use the spectrum for 4G. The shutdown will allow Sprint to simplify its complex network structure that resulted from its merger with Nextel.
The company has said that the fixed cost of operating the Nextel network was about $350 million in the first quarter ended March 31, although additional costs are involved in providing the service such as subsidizing handsets.
About 5.4 million customers used the iDEN network as of the end of September, according to a Sprint spokesman. Of those users, 3.8 million are post-paid users with the remainder being pre-paid.
The iDEN network, classified as 2G, uses handsets that provide the iconic Nextel "chirp" sound that was central to Nextel's service when the two companies merged. Customers will have to switch to new handsets as the network is shut down, although the new devices will provide the same functionality with new features and the "chirp" sound is also being preserved.
The iDEN users are mostly business and government customers who will get written notices about the shutdown beginning this week. Sprint will provide "favorable offers" for new handsets to encourage the transition to its Direct Connect push-to-talk service, which operates on Sprint's 3G CDMA network.
Sprint said the Direct Connect service offers pricing to their iDEN service. The company doesn't disclose subscriber figures for that network.
Stifel's King said Sprint faces some risk of losing customers as they are forced to switch handsets, but few other options are available.
Separately on Tuesday, Sprint disclosed a new $1 billion credit facility with Deutsche Bank AG (DB) and other lenders to fund equipment purchases from Ericsson (ERIC) that are related to building its LTE network. The company plans to redeem $1 billion in Nextel Communications notes that come due in the fourth quarter of 2013, with the remaining balance being $473 million.
-By Thomas Gryta, Dow Jones Newswires; 212-938-2169; email@example.com