Sprint still struggling to make Nextel merger work

Revenue expected to remain flat and big layoffs coming for wireless carrier.

The honeymoon period is clearly over for Sprint and Nextel. Their $36 billion marriage at the end of 2005 was supposed to result in a wireless powerhouse with strong average revenue per user (ARPU). But Sprint Nextel Monday said its earnings for 2007 will fall below earlier expectation; its revenue will be flat and that it will lay off 5,000 employees to cut costs.

Sprint expects revenue to hit between $41 billion to $42 billion for 2007. The company anticipates reporting $41 billion in revenue for 2006.

Industry watchers say the carrier's ARPU sipped even further in the fourth quarter after three consecutive months of decline, yet strong ARPU was one of the reasons Sprint bought Nextel.

Back in 2004, when the merger was proposed, Nextel’s ARPU was $69 while Sprint’s was $63, Verizon’s $51.58 and Cingular’s $49.78. But Sprint Nextel hasn’t been able to maintain Nextel’s ARPU let alone Sprint's. The combined company reported ARPU of $61 in the third quarter.

On the other hand, Verizon and Cingular’s figures have remained steady. Verizon reported ARPU of $50.59 and Cingular reported ARPU of $49.76 during the same period.

In an attempt to cut expenses, Sprint Nextel is slashing its workforce to 59,600, about an 8% reduction expected to happen mostly this quarter.

Trimming its payroll is one way it’s attempting to fix its financial problems, but the company clearly is betting its future on wireless broadband services, namely EV-DO Revision A and WiMAX.

The company says its capital expenditures will be about $8.5 billion in 2007, $1.4 billion more than in 2006. The majority of that will be spent on expanding its wireless broadband networks.

But the company’s laser focus on wireless broadband seems to be hurting the carrier in the short term.

Some have speculated that the company has not maintained the Nextel network, services or customer service. Reports say that the majority of customers leaving Sprint stem from the Nextel side of the house, hence the loss of Nextel’s high ARPU.

Although the combined Sprint Nextel brought two well established wireless service providers together, the company is struggling to add customers as quickly as competitors Cingular Wireless and Verizon Wireless, the No. 1 and No. 2 wireless carriers in the United States respectively.

Wall Street is taking notice too. Shareholders punished Sprint Nextel today, driving the company's stock price down Tuesday more than 11%.

Learn more about this topic

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Sprint Nextel backs WiMAX

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