Why Sprint And Nextel Got Hitched

In the world of big-time telecom, the Baby Bells have been hogging the spotlight as they bulk up to compete against an onslaught of new technology -- and their arch-rivals, the cable companies. For competitors hovering outside the Bells' territory, that sends a stark message: Team up or get smashed. Sprint Corp. (FON ) and Nextel Communications Inc. (NXTL ) chose the former, announcing on Dec. 15 a $35 billion deal to merge into the third-largest wireless powerhouse. With a market capitalization of $70 billion, the new Reston (Va.)-based Sprint Nextel hopes to gain the girth it needs to go up against the two leading Bell-owned wireless giants -- Cingular and Verizon Wireless -- and the wherewithal to forge ahead into the broadband future. "This is about creating the next-generation communications company," says Sprint Chief Executive Gary D. Forsee, who will head the combination.

Indeed, the deal leaves Sprint Nextel poised to play a pivotal role in the coming convergence between traditional and wireless phones, Web access, and video services. As the Bells race against the cable operators to sell consumers everything from voice to data to video, both sides need wireless phone services to sweeten their bundle of offerings. The Bells already own their own wireless companies -- but cable companies don't. Sprint Nextel can provide a ready-made wireless offering for cable's four-fer pack. "The cable companies are clearly looking for a wireless play," says Nextel CEO Timothy M. Donahue, who will be chairman of the new company. "This [merged] company is going to be remarkably successful in attracting partners."