Sprint Nextel to Build $2.5 Billion Wireless Network

August , 2006

Sprint Nextel Corp. said yesterday that it will build a network using the WiMax technology backed by Intel Corp. to provide widespread wireless Internet access that offers speeds similar to DSL.

However, some analysts balked at the $2.5 billion the company expects to spend on the project over the next two years, noting that Sprint Nextel’s work on a fourth-generation network comes as mobile carriers in the United States and Europe have yet to make money on their third-generation investments

The Reston company, the country’s third-largest mobile phone provider, is betting that consumers will pay a premium for a wireless network that will allow them to surf the Internet and conduct video conference calls — either on the go or from their homes or offices. Sprint Nextel expects the new network to reach as many as 100 million people by the end of 2008.

WiMax is similar to the WiFi technology used in coffee shops and airport terminals to provide wireless Web surfing, but the new technology provides service at greater distances. The mobile service would be priced higher than home DSL connections — typically $15 to $30 per month in this area — but the company would not provide specific amounts.

“Access in itself is the killer application,” said Atish Gude, Sprint Nextel’s senior vice president of corporate strategy and development, adding that he expects a host of devices — including MP3 and DVD players, cameras, and camcorders — to be embedded with chips that could access the network.

Sprint Nextel, which expects to launch the service in trial markets by the end of next year, plans to spend $1 billion in 2007 and $1.5 billion to $2 billion in 2008 to upgrade the network, using many of its existing cell towers. Initially, the service would offer download speeds of 2 to 4 megabits per second, which is comparable to DSL.

The company announced its plans in a joint announcement yesterday with Intel, which will make the chips to enable wireless access, and Motorola Inc. and Samsung Electronics Co., which will build infrastructure for the network, as well as devices that use it.

Sprint Nextel’s stock fell 31 cents, or 1.8 percent, to close at $16.63 yesterday, its fourth consecutive decline since announcing a 38 percent drop in profit on Thursday.

“It is very much an open question as to whether the demand is going to be there,” said Christopher King, a telecom analyst with Stifel Nicolaus & Co., a financial services firm. “I am hard-pressed to see how Sprint Nextel is going to generate positive investment return on this anytime in the near future. But this is long-term investment for them. I am not necessarily sure that they are counting on seeing a positive return anytime soon.”

Berge Ayvazian, chief strategy officer for the Yankee Group telecommunications consulting company, said Sprint Nextel would have some advantages as the first U.S. mobile phone company to build such a nationwide network.

“There will be significant demand,” Ayvazian said. “The market should reward the risk taker who is prepared to Skype the rest of the telecom industry,” he said, referring to the eBay Inc. unit whose Internet communications service threatens traditional phone companies.