Sprint Corporation Case Study - v5

SPRINT CORPORATION: CASE STUDY ANALYSIS
Sprint Corporation: Case Study Analysis

Lucas Angell
JB Blackshire
Nathan Blumenthal
Chance Lain
Vivek Mohan
The University of Texas at Dallas

SPRINT CORPORATION: CASE STUDY ANALYSIS 2
Table of Contents
Abstract ........................................................................................................................................... 3
Sprint Corporation: Historical Analysis Inception to Present ...................................................... 4
(1950 1991) Telegraph to Telecommunications ...................................................................... 4
(1992 2005) Mixed Opportunities ............................................................................................ 6
(2005 2013) Sprint Nextel Merger ........................................................................................... 9
(2013 - Present) SoftBank Acquisition ....................................................................................... 9
Sprint Corporation: Analysis of Critical Strategic Choices .......................................................... 11
Decision Point: Government Contracts ..................................................................................... 11
Decision Point: Sprint Nextel Merger ....................................................................................... 15
Decision Point: SoftBank Acquisition ...................................................................................... 17
Sprint Corporation: Alternate History .......................................................................................... 20
Horizontal Integration ............................................................................................................... 20
Value Creation and Implications ............................................................................................... 21
Future Acquisitions ................................................................................................................... 23
References ..................................................................................................................................... 24

Abstract
This paper initially explores the diverse history of the Sprint Corporation. Originally,
Sprint was founded as a telegraph communications company, and today it stands as the third
largest telecommunications company in the United States. This paper examines the decisions and
technological advances that have led to rises, falls, and pathways in order to fully comprehend
the Sprint Corporation.
Three important decision points in Sprints history are then strategically analyzed.
These analyses are completed by following the strategic management framework by performing
external analysis and internal analysis simultaneously. The analyses of external threats and
rivalry as well as internal resources and capabilities are then looked at together retrospectively in
order to understand Sprints cumulative performance based on these decision points.
Finally, an alternate history is created based on the alteration of one major decision point
previously analyzed. Comprehensive strategic analysis is performed to create an alternate history
for the company from the time of the altered decision point to the present.
Keywords: mergers, acquisitions, mobile carrier, CDMA network, MCI Communications,
Sprint Corporation, Verizon Communications, AT&T Corporation, telecommunications,
technology, horizontal integration, organizational culture, competitive advantage,
external analysis, internal analysis, strategic alliance, value creation

Sprint Corporation: Case Study Analysis
Sprint Corporation: Historical Analysis Inception to Present
(1950 1991) Telegraph to Telecommunications
Sprints inception as a company traces back to the Southern Pacific Communications
Corporation (SPCC) which acted mainly as a supplier of telegraphic wire which was used to
allow the monitoring of trains and track conditions. With the ongoing development of telephone
switching technology, the previous railroad telegraph communication was converted to voice
communication and multiplexing technology, which allowed for multiple communications to
occur simultaneously on a rail line. This spurred development and demand on telephone lines
and communication routed to cities and rural towns, and by the 1940s, these railroads had
established enormous long-distance networks that were independent of the Bell System and other
telephone companies (Index, 1999). At the time SPCC was a small fish compared to Bell, who
dominated the telecommunications market by creating subsidiaries in different geographic
regions of the United States. The 1950s brought about the widened use of radio technology and
at the same time traditional telephone networks were still being used for enterprise-level business
communications. Bell of course already had stakes in both radio and telephone segments of the
industry, and during this time SPCC was desperately playing catch up. By the 1970s
maintenance costs to uphold the switched network were rising and SPCC started to look beyond
its company borders for solutions (Universe, 2002).
In 1983, SPCC was made an offer by General Telephone (GTE) to purchase the Switched
Private Network Telecommunications group inside SPCC. This subsidiary, commonly referred to
as SPNT or sprint, was seen as an integral part of GTEs plan to compete directly with Bell,
who would later become the telecommunications powerhouse AT&T. By utilizing Sprints
existing network, GTE hoped to improve their long-distance services offered to customers and
knew that it would be a relatively simple and profitable operation. While Sprints network was in
financial distress, it still remained a useful access point between cities and GTEs existing
network segments. The acquisition was completed at the end of 1983, forming the GTE Sprint
Communication Corporation. A year later, antitrust laws forced AT&T to sell off 22 of its local
Bell companies, ending a monopoly and ultimately paving the way for competition to arise
(Universe, 2002).
In the mid-1980s GTE Sprint had hopes of pushing the envelope in the
telecommunications industry - this time with a new type of technology: fiber optics. GTE Sprint
completed the nations first completely fiber optic network for long-distance calls, and it was not
long until its competitors began to catch on to the trend. Most notable was US Telecom, which
also saw the advantages of being a first-mover in the market. In 1986, GTE Sprint entered a
limited partnership with US Telecom forming US Sprint, which enabled it to double its customer
base. At this time, Sprint only held a small fraction of market share in both US and European
markets, and with the advent of strategic alliances, Sprint hoped to gain more of a foothold in the
industry. Sprint began to focus on network infrastructure and touted a system that was more
easily maintained and more efficient than AT&Ts system, which helped to bring them closer
into the picture (Universe, 2002).
During 1988 to 1990, US Sprint underwent major changes in company ownership and
functions in efforts to control more market share. On one hand, GTE Sprint started to sell off
30.1% of its ownership in US Sprint to US Telecom, which later merged with Telenet in 1990 to
become Sprint International. Hoping to expand market share in global telecommunications,
Sprint International purchased transatlantic fiber optic cable systems and entered strategic
alliances with the British company, Cable & Wireless. At the same time, Sprint International
only held about 9% market share in the US, and concerns shifted from overseas back to domestic
profits. Sprint began to look for new opportunities in the form of government contracts, and in
1988, Sprint proactively sought to work with the government on the Federal
Telecommunications System on a guaranteed revenue contract called FTS2000 that would allow
for up to 26% of the government network traffic to go through Sprints network infrastructure
(Jackson, 1999). According to the US General Accounting Office, ...the multibillion-dollar FTS
2000 long distance services contracts ultimately reached more than 1.7 million users during the
contracts 10-year existence. FTS 2000 revenues for fiscal year 1999 alone approached $752
million for a variety of voice, data, and video communications services to users throughout the
federal government. By Sprint securing the government contracts in a strategic alliance, they
were able reduce cost and risk as well as gain considerable competitive advantage in the market
for years to come. No more was Sprint a small fish in the pond and the government contracts
certainly set precedence for future success to come (Corporation, 2013; Universe, 2002).
Although Sprints market presence in the US was still quite small, the company was on
the way to becoming one of the nations largest telecommunications companies. Due to its
improved resources and capabilities over other firms from certain strategic alliances and
acquisitions, Sprint had the laden capability to improve its stance within the industry--it was just
a matter of how to do it. The company would next look for ways to improve market share in the
US, as well as maintain its overseas operations for years to come.
(1992 2005) Mixed Opportunities
In 1992, US Sprint started to notice that the long-distance revenues were accounting for a
very minimal amount of its total revenue and the company realized that some sort of action was
necessary. After much reorganization, US Sprint realized that in order to start becoming more of
a global force within the industry, the company must drop the US from the name thus
changing the name to Sprint Corporation. By 1993, the company served over 6 million customers
and it was the third-largest long-distance provider in the United States, but it remained far behind
the market leaders, AT&T and MCI. Revenue was just under $13 billion by 1994, compared to
$75 billion for AT&T (Universe, 2002). Sprint needed to do something in order to keep up with
the rest of the pack.
Even as Sprint continued its steady growth, AT&T and MCI controlled the industry as
they produced hundreds of commercials promoting its superior long-distance service. So by
1997, Sprint only controlled about 10% of the nations overall long-distance market. Not content
with its spot in the market, Sprint began advertising a new generation of telecommunications.
Sprint hoped to offer high-speed digital connections that would allow simultaneous transmission
of voice, data, and video, as well as providing internet connections, called an Integrated On-
Demand Network (ION). Sprint began its focus of selling to businesses and major corporations.
Sprint assumed businesses and major corporations would be much more willing to pay for this
new, expensive equipment than the average consumer. In 1999, the company started to sell the
ION network to residential consumers offering them a service bundle of local, long-distance, and
internet on one convenient bill (Corporation, 2013; Universe, 2002).
As the telecommunications industry continued to boom and grow exponentially, several
corporations started to purchase as much of the competition as possible to increase their market
share. This was especially true for WorldCom, who had been on an acquisition spree since about
the mid-1990s. Their plan was to purchase Sprint and obtain their wireless business as well as
the promising new technology Sprint had developed and owned. This eagerness was reflected in
WorldComs offer of $115 billion for Sprint, a company whose previous years revenue was $17
billion. This mega deal would have created an enormous new company so regulators in US and
Europe alike raised questions about the anti-competitive implications of the deal. While this deal
was approved by the stockholders in 2000, in July federal regulators ruled that the merger should
not go through (Corporation, 2013; Universe, 2002).
While the fall through of the merger hurt Sprints bottom line, the companys growth was
stagnant for nine months while the deal was pending. Unlike most companies, Sprint was still
spread among its four major businesses with its local phone, long-distance, internet, and wireless
operations. In December 2000, Sprint and AT&T were able to renew their FTS2000 contracts,
which were now accounting for over 40% of government traffic in the US (Universe, 2002). By
leveraging existing ION network resources and sharing costs with the government, Sprint, with
its government contracts, was establishing a considerable foothold in the telecommunications
industry. However, in 2001, more bad news hit the company as the telecommunications industry
was struggling generally and major layoffs were necessary for all firms involved. Despite the
soft economy, Sprint persisted with investments in new technologies and opportunities. On one
hand they were beginning development of a new switching technology known as a packet
network that allowed for more traffic on telecommunication lines and a more efficient system
that would improve its user base considerably for the future. On the other hand, from 1998 to
2001, they were able to secure the first bid in a newly approved government contract called
FTS2001 that would improve their control of government telecommunications from 40% to 76%
(Office, 2001). Under the terms of these contracts, each contractor was guaranteed minimum
revenue of $750 million over the span of four years, allowing for a cost saving of up to $3.8
billion, or roughly 60% for Sprints telecommunications services (Jackson, 1999). Sprint was
now in a healthy position having secured guaranteed revenue with its government contracts, and
the company would soon look forward to entering more segments of the industry in efforts to
expand their market share (Corporation, 2013; Office, 2001; Universe, 2002).
(2005 2013) Sprint Nextel Merger
In August of 2005, Sprint and Nextel officially merged to become one of the dominant
players in the mobile phone industry in the US. As with most mergers, there was not a perfect
transition. During 2005 and 2006, many executives left Sprint Nextel Corporation due to cultural
differences between their original firm and the newly-merged telecommunications giant. In
addition to the organizational culture differences, there were also product differences which
made it difficult to streamline the entire product line now owned by Sprint Nextel (Quora, 2012).
It was during this time that Sprint Nextel Corporation started taking an aggressive growth
strategy through acquisitions. The newly-merged corporation, Sprint Nextel, started acquiring
affiliates of the previously individual Sprint and Nextel corporations to directly add customers to
the new Sprint Nextel Corporation. From 2006 to 2009, Sprint Nextel acquired external entities
such as Gulf Coast Wireless, Enterprise Communications, Velocita Wireless, and Virgin Mobile
USA. With the acquisition of many smaller mobile personal communication services firms,
Sprint was in an ideal position to be acquired by a larger company (Corporation, 2013).
(2013 - Present) SoftBank Acquisition
Towards the end of 2012, Sprint Nextel began discussions with the Japanese mobile
wireless carrier SoftBank. During the last decade Sprint has been on the losing side of a fierce
competition with rivals AT&T and Verizon without any luck breaking the effective duopoly the
two hold on the mobile carrier market in the United States. When CEO Dan Hesse became top
executive in 2007, Sprint Nextel was losing 1 million customers every quarter due to the failed
integration of Nextels acquisition in 2005. SoftBank, the then 3rd largest mobile carrier in Japan
was in need of growth due to the increasingly stagnant economy in Japan and decided to make a
push overseas. In October 2012, Sprint Nextel announced that it was in talks with SoftBank and
considering an acquisition proposal. The proposed deal allowed for SoftBank to pay $20 billion
to acquire 70% of Sprint Nextel, which equated to paying Sprint Nextel shareholders $12.1
billion and $8 billion in new capital for the newly-formed company, the Sprint Corporation.
Another proposal of the deal would be to keep Sprint Nextels current operational structure in
place. SoftBanks acquisition proposal came with an immediate $3.1 billion dollars from
SoftBank to Sprint Nextel to keep the company afloat. Sam Byford reported that a $600
million breakup fee payable to Softbank if Sprint cancels the deal, along with $400 million in
transaction expenses (Byford, 2013).
In July 2013, Softbank officially acquired Sprint Nextel, renaming it Sprint Corporation.
Sprint effectively increased its competitive edge in the U.S mobile industry and received a much-
needed cash infusion helping boost its chances against the two competitors, promoting customer
choice, and lowering prices. After holding back investments for the latter part of the decade,
Sprint had the resources to invest in the market, create a world class platform, and build up its
high-speed next-generation network while accelerating its turnaround (Harlan & Tsukayama,
2012). With the aggressive strategy to enter strategic alliances, most notably with SoftBank,
Sprint appeared to finally be on the rise to increasing profits and garnering more market share of
the telecommunications industry (Musil, 2013).
Sprint Corporation: Analysis of Critical Strategic Choices
Decision Point: Government Contracts
Throughout the history of the Sprint Corporation, there have been many buyouts and
strategic alliances that have shaped the companys landscape. Most notably, the acquisition of its
first government contract in 1988 was a massive change in both the notoriety of the company, as
well as its market share in the industry. By operating under a corporate-level strategy to enter
into a proactive and non-equity contractual service contract with the government project FTS, or
Federal Technology System, GTE Sprint hoped to gain a competitive advantage by neutralizing
external threats and capitalizing on its internal capabilities. When talks emerged as to who would
be the first to obtain the FTS2000 contract, GTE Sprints existing network was seen as a huge
opportunity and resource for the government to utilize, and at the same time GTE Sprint was
happy to offer its services through contracted, guaranteed revenue.
The telecommunications industry around 1988 was a mature market with many external
threats such as a high threat of rivalry due to low product differentiation among firms and slow
speeds of production growth. When there are low levels of product differentiation, firms are
forced to compete on price. With the large incumbency enjoyed by AT&T from previous Bell
systems, GTE Sprint was in desperate need of a way to overcome cost disadvantages. On the
other hand, with the need for large increments in production growth to expand network
infrastructure, improvements to service by firms is much more risky and costly in such a high-
rivalry atmosphere. Secondly, the existence of a high barrier to entry made it difficult for GTE
Sprint to gain serious competitive advantage over AT&T, only a few years after the GTE Sprint
acquisition occurred. With AT&T enjoying a somewhat historical uniqueness, having been the
major company to come out of the anti-monopoly break-up of Bell systems subsidiaries in the
1970s, AT&T gained a cost advantage independent of scale. With a wide range of cost
advantages from early entrants into the market via learning-curve and sustained managerial
know-how, AT&T was a real force to be reckoned with. GTE Sprint was at a major cost
disadvantage from an external viewpoint, and the settlement of potential government contracts
was vital to GTE Sprint being able to neutralize high external threats and ultimately achieve
competitive advantage in the industry.
Although GTE Sprint was on a relatively-threatening competitive landscape, due to the
recent acquisition by GTE to form GTE Sprint, the company possessed some strong internal
competences that were yet to be exploited. After the acquisition, GTE Sprint also entered into a
limited partnership with US Telecom to form US Sprint and to enter the mobile telecom market.
The company also invested in technology to create a fiber optic network while integrating its
existing long distance ION voice and data service with its more local user base. All of this
increased the companys value due to having a firm hold in multiple segments of the industry.
Secondly, GTE Sprint enjoyed a high cost of imitability. With its stake in both local and long-
distance data markets as well as its work on a new fiber optic system, only the big firms above
GTE Sprint such as MCI WorldCom and AT&T had comparable strength (Universe, 2002). The
high internal value and cost of imitation helped to culminate the organizational a strong
organizational capability. By 1986, GTE Sprint had completed a transatlantic fiber optic system
and went into another limited partnership, this time with British company, Cable & Wireless
(Universe, 2002). These ventures, coupled with its growing market share in the US, primed GTE
Sprint as a good candidate for the government contracts. By securing the contracts, GTE Sprint
had hoped to capitalize on its strong internal capabilities and achieve competitive advantage over
rival firms.
While GTE Sprint was eager to secure the government contracts, its strong internal
capability amidst a threatening external environment meant that the company needed to make
sure that the strategic alliance would create value and competitive advantage. It needed to ensure
the opportunity would compound its internal strengths but also overcome and negate the external
threats such as rivalry and high cost of entry in the industry. GTE Sprint hoped that with the
contracts it would be able to both improve current operations and engage in activities to foster
competitive advantage. The decision to form a strategic alliance in the form of the government
contract of FTS2000 seemed like a smart, calculated decision that would pay off. Thankfully for
GTE Sprint, that is exactly what happened. Not only did this contract allow for GTE Sprint to
gain a competitive advantage over several of the main competitors at the time, but it also
exposed them to a new client base, which in turn gained them impressive profits. The
multibillion-dollar FTS 2000 long distance services contracts ultimately reached more than 1.7
million users during the contracts 10-year existence. FTS2000 revenues for fiscal year 1999
alone approached $752 million for a variety of voice, data, and video communications services to
users throughout the federal government (Office, 2001).
One reason this contract was so successful was that it drastically improved current
operations within Sprint. One of the main concerns of the government was that it wanted to make
sure that there was an interoperable network between both AT&T and Sprint. This led to Sprint
expanding its network in very large increments to cover a much larger spectrum of the U. S. than
previously covered to keep up with the juggernaut of AT&T. An expansion of this magnitude
would normally have been much too expensive and ambitious, but with the help of the funds
created by this contract, the company was able to achieve its goals. This expanded network
created to appease the contractor actually turned out to help Sprint in another way as it was able
reach more Americans in other parts of the nation. Thus the company was finally able to utilize
the advantage of economies of scale by capitalizing on the increased market share that was
presented to it by this contract.
Because every government agency was required to use the program of FTS2000 for its
long distance communications, Sprint was given a sense of stability. Due to the contract
demanding that both networks be interoperable, AT&T was forced to work closely with Sprint,
which then allowed Sprint to pick up on a few things and help dilute the learning curve
advantage that AT&T had had for so long. Along with these advantages, Sprint was also able to
garnish less of the risk and cost since it was in an alliance with numerous government agencies.
The other large advantage this contract created was the shaping of the competitive
environment for Sprint. For the facilitation of the technological standards, Sprint was working
very closely with the government and was then able to adapt and implement government
standard technology. It was also able to form a tacit collusion with AT&T and both companies
were able to set prices in accordance with each other and have the rest of the market react.
The government contract of FTS2000 was a monumental swing for Sprint in the right
direction. It was able to help expand the company and create a stream of strong consistent
revenues over its life. Aside from the clear short term advantages created by this contract, it also
helped seal the immediate future by leading to another government contract. This new contract
was called FTS2001 and was the successor to FTS2000. This contract guaranteed a minimum
revenue of $750 million for eight years and would allow Sprint the continued opportunity to
exploit the advantages that had come from this impeccable alliance (Office, 2001).
Decision Point: Sprint Nextel Merger
In order to create growth and sustainability, Sprint and Nextel proposed a merger. By
merging their expertise at opposite ends of the communications market, both companies felt that
they would be able to fill in gaps in their product offerings and compete on a larger scale and
become a more potent rival to AT&T and Verizon.
Both Sprint and Nextel were at their maximum equilibrium points and had solid
performance leading up to the merger. Sprint was the leader in wireless data communications in
the personal and home service market and also had an integrated long-distance network, but it
was turning its focus to developing content for the consumer market (McQuade & Khanfar,
2010). Nextel had the push-to-talk feature in its walkie talkie service that was very popular with
its majority commercial market, but it did not have long distance wireless capabilities (McQuade
& Khanfar, 2010). Nextel was also close to maxing out its network and clientele of business
customers and was out of options for gaining them. By combining these two networks, Sprint
and Nextel thought their complementary assets would be able to offer a more complete bundled
product that would lure customers from their competitors and create the potential for value
creation. Sprint would also give access of its larger customer base for Nextel to use.
Sprint operated on the idea that bigger is better and thought that by increasing its
geographic spread and creating economies of scale through operational efficiencies in
infrastructure, sales, marketing, customer support, and cost saving, the combination of the two
companies would create a competitive advantage and synergetic relationship. This would lead
the way to magnified market dominance and increased profits almost instantaneously.
Although the merger between Sprint Corporation and Nextel Corporation was predicted
to produce a telecommunication giant, the merger did not go as planned. One of the fundamental
qualities of a successful merger is successful integration of the two pre-existing entities.
Fundamentally, the comprehensive integration between the two firms that formed the new Sprint
Nextel Corporation was not at all successful and did not provide long term synergy and value as
a typical merger would have. One of the biggest reasons why operational integration failed was
because of the incompatibility of the technology that the firms possessed. Sprint wanted to merge
with Nextel so that it could enter the market of providing personal communication services to
businesses, while Nextel wanted to enter the consumer personal communication services market.
For example, Nextels iDen network and Sprints CDMA network were two very incompatible
networks that led to even further problems (Quora, 2012). The incompatibility of these networks
affected the ability to swiftly gain access to the newest hardware on the market. For example,
while AT&T added the Motorola RAZR to its product line in 2004, Sprint only added the RAZR
to its product line in 2006 (Quora, 2012). Also, when AT&T acquired the rights to add the high-
tech iPhone to its product line in 2007, Sprint followed in 2011 (Quora, 2012). There was a lot of
lag created by inefficient and unconsolidated networks that prevented Sprint Nextel from
obtaining rights to carry more new and popular cell phones. This was a clear case of last-mover
disadvantage and Sprint paid the price for it.
One of the most important issues that the new Sprint faced was customer service quality.
Usually an overlooked step in the value chain, Sprint was also one to not heavily invest in quality
customer service. As Sprints focus was on its own internal organization and implementing its
operations with unconsolidated networks from the original Sprint and Nextel, it was not just
diseconomies of scale that was hurting Sprint. Its customer service reputation was not being
perceived by customers as being effective and helpful. The separation of Sprint and Nextel
customer service lines within the new Sprint Corporation did confuse some customers and
demonstrated the divide within the newly merged firm (McQuade & Khanfar, 2010). In addition
to the service lines, Sprint was also known for constant roaming charges applied to customers
accounts that led to a significant increase in its customer attrition rate (McQuade & Khanfar,
2010). With the newly merged firm, the dissonance experienced by the two internal groups had
manifested itself externally to its customer service operations.
Another fundamental quality of a successful merger is the successful integration to form
a new organizational culture. Sprints original organizational culture resembled a bureaucratic,
authoritative, and centralized organizational structure. Nextels original organizational culture
embodied an entrepreneurial, democratic, and uncentralized organizational structure. Two years
after the merger, the organizational structure weakened because the two groups, although merged
into one organization, failed to culturally integrate. From dress code to company values, the two
cultures have both stayed separate in their individual factions, which led to poor staff morale and
eventually poor employee productivity (Hart, 2007). The merger not only left the new
companys technology and products unconsolidated, but also its employees in collective
disarray. Not surprisingly, the organizational clash resulted in many Nextel executives and
employees leaving due to a common lack of trust between the two groups.
Decision Point: SoftBank Acquisition
During the last decade Sprint has been on the losing side of a fierce competition with
rivals AT&T and Verizon without any luck breaking the effective duopoly the two hold on the
mobile carrier market in the United States. In 2012, Sprint Nextel announced that it was in talks
with SoftBank and considering an acquisition proposal. The expected new capital would give
Sprint more flexibility to buy spectrum, which accounted for only 56 megahertz at the time
compared to the 100 megahertz that each of its rivals held, and it would also allow Sprint to
acquire smaller rivals. Another proposal of the deal would be to keep Sprint Nextels current
operational structure in place. This consideration would allow SoftBank to combat cultural
differences and avoid the managerial hubris that oftentimes plagues companies in the post-
acquisition phases of M&A activities. Some constraints of the deal required FCC approval of the
acquisition and then an expected completion near the end of July 2013. The acquisition proposal
came at a time when Sprint Nextel had just lost $767 million in its third quarter with a loss of
456,000 customer contracts. The company was hit hard in its endeavor to expand its network
overhaul project, unlike its competitors who reported combined profits of over $5 billion dollars.
Sprint Nextel faced a declining business and its balance sheets were continuing to stack up with
debt. SoftBanks acquisition proposal came with an immediate $3.1 billion dollars from
SoftBank to Sprint Nextel to keep the company afloat.
In April 2013, Sprint Nextel was approached by Dish Network, with a merger
opportunity to consider over the proposed acquisition by Japans SoftBank. Dishs proposal
presented Sprint Nextel with an alternative to the pending SoftBank proposal by offering $25.5
billion dollars - $17.3 billion in cash and $8.2 billion in stock. Dish estimated that the synergies
of the Dish/Sprint merger would create a net present value of $37 billion, which included an $11
billion in cost savings and approximately $1.8 billion in annual cost synergies by the third year
after closing. Dish also touted that the potential Dish/Sprint entitys combined footprint and scale
would allow joint spectrum assets to its customer base. Sprint responded that it would evaluate
the Dish offer.
Sprint Nextel, the target firm, sat in a position that it had not created but could now work
to its favor. The major consideration was to completely relinquish control of Sprint to be a 30%
holder in SoftBanks market extension or partner with Dish to enter into an economy of scope
that would allow both companies to survive temporarily as a new company but with a heavy
burden of debt. Sprint Nextel employed the delay tactic with SoftBank, but it did not stop the
acquisition process in order to take into consideration both proposals.
SoftBank initially did not counter the Dish Network offer, instead simply stating that it
still had the superior bid and backing to advance Sprint and its profit margin far more then what
Dish had brought to the table. However, as the Sprint Nextel shareholders continued to delay
their votes for either acquisition or merger, SoftBank increased its bid to $21.6 billion in cash
and stock options, a $4.5 billion increase in its initial offer. SoftBank also gave concessions to
the U.S. government to choose 1 of the 10 board of directors if the acquisition deal were to
proceed. Another concession that SoftBank agreed to was the promise of not using any of the
Chinese networking equipment that it used in its current operations in Japan. Dish Network did
not issue a counter to the offer or raise its bid as the company was content in thinking that it had
the superior offer at the table already.
Sprint shareholders met in late June 2013 to discuss how it would make a reactive
decision to Dish and SoftBanks proposals. The target firm had a few things to take into account:
cultural, geographic alignment, free cash flow, and above normal profits. Considering the Dish
proposal, cultural differences would be extremely high. Dishs CEO was known for having a
mind of his own and engaging in activities he did not communicate with across the board i.e.
buying up small spectrum telecommunications companies but not doing anything with them and
pushing to compete against Sprint in its efforts to acquire Clearwire, another wireless spectrum
holder in the U.S. Considering its proposal to keep Sprints current leadership in place, SoftBank
had the significant upper hand in establishing an immediately effective culture, which in itself
would be costly to integrate and anticipate. Geographically, Dish was located and operated
within the United States already so it had the upper hand compared to the Japanese SoftBank. In
terms of free cash flow the weight dipped in SoftBanks favor, being a highly profitable
company and having a strong Japanese yen-backed economy. Dish Network, however, would be
borrowing from its balance sheet and using up its cash reserves and increasing its debt threshold
to merge with Sprint Nextel. The combined debt would be staggering and costly to emerge from.
Sprint had to take into consideration which corporate level business strategy would create above-
normal profits. A merger to make a Dish/Sprint company had aspects of imitability of AT&T and
Verizons bundling service of data, voice, and TV. However, it did not create a rare product that
in itself was not inimitable. SoftBanks funding would allow Sprint to overhaul and upgrade its
current network and seek out similar spectrum holders to acquire in order to increase its overall
network capacity. In the end the scales of judgment leaned toward the bidding firm of SoftBank.
Sprint Nextel accepted SoftBanks acquisition proposal and official became the Sprint
Corporation in July of 2013.
Sprint Corporation: Alternate History
Horizontal Integration
As the telecommunications industry was moving towards more consolidation, Sprint was
in a peculiar position to control its own fate. While Sprint was competing in multiple segments
of the telecommunications industry, it was still behind the leader, AT&T, in both long distance
and wireless. The company would look beyond its internal capabilities and explore the external
environment in efforts to find a solution to ensure competitive advantage.
In April 2005, Sprint acquires MCI Communications for $8.5 billion after MCI was
coming out of bankruptcy restructuring. Verizon Communications, the other major CDMA
carrier in the US market and Sprints rival, was also interested in acquiring MCI. To combat this,
Sprint had to pay a hefty premium to acquire MCI. Verizons initial of $6.75 billion would be
counter by Sprint with an offer of $7.50 billion. Verizon then makes another offer to MCI, but
Sprint finally won the bidding war with the $8.5 billion acquisition, a $1.75 billion premium over
its original purchase price.
By acquiring MCI Communications, Sprint gained access to all 1 million MCI business
customers and 14 million residential customers (Ewalt, 2005). Now, all there was left to do on
Sprints part was to consolidate this acquisition into its existing operations to further increase its
economies of scale. Since MCIs CDMA network was compatible with Sprints CDMA wireless
network, the addition of MCIs spectrum allowed Sprint to bolster its presence in the CDMA
market in the US. The result of the smooth transition from an acquired firm to the integration of
Sprints operations resulted in the creation of the Sprint Business Services (SBS) division,
securing even more corporate clients.
Value Creation and Implications
While many major mergers and acquisitions had changed the competitive landscape of
the telecommunications industry, there were still many smaller companies that owned wireless
spectrum, offering a lucrative acquisition options to companies that could afford to do so. MCI
WorldCom had been a long competitor to Sprint in both long distance and wireless segments,
and with current financial problems that ultimately led to a declaration of bankruptcy in 2004,
MCI WorldCom was seen as a diamond in the rough opportunity for Sprint. Sprint decided
that a corporate level strategy of horizontal integration, via acquisition of competitor companies
such as MCI WorldCom, would be a proactive and successful venture. With Sprint looking for a
way to create competitive advantage in the most effective way possible, the buyout of MCI was
seen as a unique opportunity, that if exploited, would ensure future survival of the company.
A major reason behind the proposed corporate level strategy of horizontal integration via
Sprints acquisition of MCI WorldCom was that of ensuring survival. With the industry moving
towards more consolidation, and Sprint holding only about 12% of total national industry
revenue, Sprint was in position to act quickly in efforts to survive and create some type of
competitive advantage (Shepherd, 2000). Likewise, after having emerged from bankruptcy
protection in 2004, MCI WorldCom was keen to turn its fortunes around with a potential buyout
of the company. Although MCI was searching for a saving grace, it also had a good deal on the
table for interested companies: an addition of 14 million residential customers and 1 million
corporate clients, a robust national voice-and-data network, $5.6 billion in cash and an
experienced sales force (Ewalt, 2005). At a time when Sprint was competing with multiple
companies, most notably AT&T and MCI WorldCom, this was a win-win deal for both
prospective companies. On one hand Sprint could consolidate and integrate MCIs existing
networks into its own for cost savings and improvement to economy of scale, but also capitalize
on the large existing customer-base and sales force that MCI had garnered. David Ewalt of
Forbes Magazine even went on to say, MCI became the only option for a telecom firm wishing
to buy a strong list of business customers, putting pressure on [companies] to snatch up the prize
before a rival could. With Sprints ambition to stay competitive, and the opportunity to increase
its service and clientele, the acquisition of MCI WorldCom was a vital decision to ensure
Sprints survival in the industry.
The goal for full integration between networks of Sprint and MCI will be in the third
quarter of 2006. When full integration is met it is expected that there will be a 30% increase in
traffic for the MCI backbone (Duffy, 2006). There is a well-established infrastructure and capital
at Sprint to make the necessary adjustments. The main plans being discussed have been to add
more soft switches and ports to handle the great increase in traffic. The increased traffic will
require more manpower which again can be easily compensated for due to the increased
revenues this will generate and can be well managed because of the multidivisional structure of
Sprint.
Future Acquisitions
Sprints survival is centered on acquisitions for scale and expansion of its network.
Looking beyond its internal capabilities and exploring the external environment in efforts to find
a solution to ensure competitive advantage, led Sprint to continue along the path of horizontal
integration, via acquisition of competitor companies. As Sprint and MCI effectively completed
its strategic execution at the beginning of 2008, its combined set of assets focused on the
acquisition of Alltel. The strategic initiative comprised of interrupting the proposed M&A plan
that Verizon Wireless had on the table with Alltel. Verizon had a proposal to acquire Alltel for
$28.1 billion, $22.2 billion being allocated directly to cover Alltels current debt. Sprints
acquisition proposal would allow for $7 billion for the equity of Alltel, totaling $29.2 billion
overall.
Sprints strategic transformation initiative was to form into one of the top integrated
communications companies in the United States. In order to directly close the gap that existed in
the telecommunications industry, led by AT&T and Verizon Wireless, Sprints goal is to seek
out key acquisitions that would allow it to integrate and develop a robust network that provides
customers with more choices in telecommunication services. By joining its network with Alltel,
Sprint, would prompt investors in the industry to join forces and leverage collaborative efforts to
capitalize in an evolving telecommunications ecosystem to overtake its competition.

SPRINT CORPORATION: CASE STUDY ANALYSIS
References
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complete-mci-network-integration-in-q3.html
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one-of-the-worst-acquistions-ever-at-35b/
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http://www.epi.org/publication/briefingpapers_wrongnumber/
Universe, F. (2002). Sprint Corporation History. Retrieved from
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SPRINT CORPORATION: CASE STUDY ANALYSIS

Sprint Corporation: Case Study Analysis

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