Filed by Nextel Communications, Inc.
Pursuant to Rule 425 under the Securities Act of
1933 and Deemed Filed under Rule 14a-12 of the
Securities Exchange Act of 1934
Subject Company: Nextel Communications, Inc.
Commission File No. 0-19656
SPRINT NEXTEL
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
A number of the matters discussed in this document are not historical or current
facts deal with potential future circumstances and developments, in particular,
information regarding the new company, including expected synergies resulting
from the merger of Sprint and Nextel, combined operating and financial data,
future technology plans, and whether and when the transactions contemplated by
the merger agreement will be consummated. The discussion of such matters is
qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may materially differ from actual future
experience involving any one or more of such matters. Such risks and
uncertainties include: the failure to realize capital and operating expense
synergies; the result of the review of the proposed merger by various regulatory
agencies, and any conditions imposed on the new company in connection with
consummation of the merger; approval of the merger by the stockholders of Sprint
and Nextel and satisfaction of various other conditions to the closing of the
merger contemplated by the merger agreement; and the risks that are described
from time to time in Sprint's and Nextel's respective reports filed with the
SEC, including each company's annual report on Form 10-K for the year ended
December 31, 2003 and quarterly report on Form 10-Q for the quarterly period
ended September 30, 2004, as such reports have been amended. This document
speaks only as of its date, and Sprint and Nextel each disclaims any duty to
update the information herein.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed transaction, a registration statement on Form
S-4 will be filed with the SEC. SHAREHOLDERS OF SPRINT AND SHAREHOLDERS OF
NEXTEL ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT
DOCUMENTS FILED WITH THE SEC, INCLUDING THE JOINT PROXY STATEMENT/ PROSPECTUS
THAT WILL BE PART OF THE REGISTRATION STATEMENT, BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE COMBINATION. The final joint proxy
statement/prospectus will be mailed to shareholders of Sprint and shareholders
of Nextel. Investors and security holders will be able to obtain the documents
free of charge at the SEC's web site, www.sec.gov, from Sprint Investor
Relations at Sprint Corporation, 6200 Sprint Parkway, Overland Park, Kansas
66251, 800-259-3755, Option 1 or from Nextel Investor Relations at 2001 Edmund
Halley Drive, Reston, Virginia 20191 or call 703-433-4300.
PARTICIPANTS IN SOLICITATION
Sprint, Nextel and their respective directors and executive officers and other
members of management and employees may be deemed to be participants in the
solicitation of proxies in respect of the combination. Information concerning
Sprint's participants is set forth in the proxy statement dated March 16, 2004,
for Sprint's 2004 annual meeting of shareholders as filed with the SEC on
Schedule 14A. Information concerning Nextel's participants is set forth in the
proxy statement, dated April 2, 2004, for Nextel's 2004 annual meeting of
shareholders as filed with the SEC on Schedule 14A. Additional information
regarding the interests of participants of Sprint and Nextel in the solicitation
of proxies in respect of the combination will be included in the registration
statement and joint proxy statement/prospectus to be filed with the SEC.
DECEMBER 15, 2004
8:00 AM CT / 9:00 AM ET
Man: Ladies and gentlemen please give a warm welcome to President
and CEO of Nextel, Tim Donahue and Chairman and CEO of Sprint,
Gary Forsee.
Tim Donahue: Good morning and welcome to the future of communications. Gary
and I are delighted to be here with you today to announce this
surprise.
As the voice of whoever just said, I'm Tim Donahue President
and CEO of Nextel, and Gary and I very much appreciate all of
the attendance here today.
I'd also like to welcome those who are listening on our
conference call and over the web. And I would especially like
to extend a warm welcome on this very important day to the
employees of Nextel and Sprint who are watching and listening
to this presentation. Without their incredible hard work and
commitment, neither Gary nor I would be on this stage today.
It is the employees of these two great companies that have
made this possible.
Today Sprint and Nextel announce the merger of equals. It's an
exciting transaction that brings together the two leading
telecommunications companies with tremendous assets, excellent
customer bases, strong growth profiles, and proven management
teams.
In short we are creating the premier telecommunications
company in America. It's wonderful news for our customers,
shareholders, and employees and I am thrilled to be part of
this historic event.
The merger as the slide points out will build strength on
strength. You all know that both Sprint and Nextel possess
excellent growth prospects in their own rights. The
combination of industry leaders in both voice and data
services expands those prospects.
I am jazzed about this combination because of the combined
assets and telecommunications capabilities are so closely
aligned with the high growth areas of our industry. This will
be a predominantly wireless company with global IP assets.
Now you all know that the demand for wireless has been
insatiable. Subscribers, minutes, revenues are all growing at
double-digit rates. And this new powerhouse company has the
spectrum, the infrastructure, the distribution, and the superb
and differentiated product portfolio that will drive our
continued success.
We are looking forward to extend our voice and data leadership
for years to come, and I know Gary and I are personally are
looking forward to competing with the Verizon's and the
wireless, and the Cingular's of the world for preeminent rule
in wireless and in telecom as we move forward.
Our company's operational strengths, cultures, and management
experience are complimentary. Sprint's wireless portfolio
serves the consumer market while Nextel has made a name in
servicing business and government.
Both companies have embraced product and service innovation.
Both brands are widely respected, both cultures, young, fast
moving, and ambitious. And
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both of us are committed to achieving success while employing
the highest ethical standards.
The combination will accelerate our growth in cash flow. This
combination creates substantial value to numerous capital and
operating synergies. We conservatively estimate the value of
these synergies at a net present value of $12 billion. Gary's
going to elaborate more on the savings, but let me just say
they extend to every facet of our business.
We will capitalize on best practices and systems of each
company as we make decisions on product lines, network
investments, new services, billing, and customer care, our
company will have an open competition and we will let the best
ideas win.
Neither Gary nor I come to this company with any preconceived
notions or prejudices. Both of us are fully committed to
choosing the right path.
Finally we will plan to unlock significant value by creating a
stand-alone local telecom provider, which itself will be the
largest independent telephone company in the United States.
I want to spend some time talking briefly about the
transaction itself. Under the terms of the agreement the
shareholders of Sprint and Nextel will receive equal value.
The Nextel shareholders will receive value equal to 1.3 new
shares of Sprint Nextel subject to the adjustment of cash
consideration payable to Nextel shareholders to provide a pro
forma ownership position that will allow for the local wire
line spin-off.
The aggregate cash consideration will not exceed $2.8 billion.
The precise allocation of stock and cash will be determined at
the close of the transaction.
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The transaction must be approved, as you all know, by Sprint
and Nextel shareholders, federal regulatory agencies including
the FCC, The Department of Justice, and State Public Utility
Commissions.
We expect the merger to close sometime in the second half of
'05.
I want to talk a little bit about scale and scope. Sprint
Nextel will have more than 35 million high quality wireless
subscribers and 6 million long distance customers. These
customers generate approximately $34 billion in annual revenue
and over $10 billion in pro forma OIBDA over the last 12
months.
Furthermore as you can see from the bottom half of this chart,
78% of the revenue at the new company will be derived from our
high growth wireless business.
In a subsequent transaction, shareholders of the new entity
will benefit from the future spin-off of Sprint's local
assets. On the far right of the upper charts, Sprint has 7.7
million access lines generating as you can see, $6 billion per
year and total revenues in nearly $3 billion in OIBDA.
These numbers will make Sprint's local business the largest
independent local telephone company in the nation.
In terms of growth and what are the prospects for growth,
looking at the industry the same way investors do, by company
there are five large cap players. What this slide shows, is
that the revenue and the growth rates of these players using
the data from the last 12 months and adjusting for the
spin-off off the local business, Sprint and Nextel is growing
the top line at a rate of 13%. We would be the fastest growing
company among our peers, the large cap telephone service
companies. As you can clearly see from the chart on the left
they are challenged to grow their business by low single digit
percentages.
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Using OIBDA figures from the past 12 months the combined
Sprint Nextel would be growing even faster, at 16%. By
comparison most of the large cap telephone service companies
have posted negative growth rates over the same time frame.
So the performer for growth profile of our business is
extremely attractive in terms of both revenue and OIBDA. As we
look to the future we will endeavor to maintain strong growth
rates driven by a vibrant demand for a differentiated wireless
communications services and continued operating efficiencies.
To the management team, when Gary and I first started to chat
about possibly coming together we set our priority for
securing very highly talented management team, and we
succeeded in bringing together the best manager's in the
industry.
As you all know, I will serve as Executive Chairman for Sprint
Nextel. I will be working side by side with Gary, the CEO to
develop the company's strategic direction, and most
importantly to help ensure the achievement of the $12 billion
in synergies that make this deal so compelling.
As mentioned, Gary will be the company's President and Chief
Executive Officer. You can see our new organizational and
reporting structure on the left hand side.
Len Lauer Sprint's current President and Chief Operating
Officer will the COO for Sprint Nextel. Paul Saleh, Nextel's
current CFO will be the Chief Financial Officer of Sprint
Nextel. Barry West Nextel's current CTO will be the Chief
Technology Officer, and Tom Kelly Nextel's current COO will be
the Chief Strategies Officer.
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The two transition officers will be Rick Orchard from Nextel
and Steve Nielsen from Sprint. And at this time I would also
like to recognize and thank Bob Dellinger for the key role
that he has played in transforming Sprint and getting the
company to this historic day. He will continue to contribute
and in a substantial way in the closing of the merger and the
spin out of Sprint's local business.
The Sprint Nextel Board will include 12 directors. There will
be five independent Directors from Sprint and five from
Nextel, plus Gary and myself. Inclusive of the 12, there will
two independent lead Directors, one from each company.
Our executive headquarters will be in Reston, Virginia where
Nextel is currently located. Operational headquarters in
Overland Park, Kansas where Sprint is currently located.
Now before I turn it over to Gary just a few words.
I would first be remiss if I didn't thank the 18 thousand plus
employees at Nextel who have done such an incredible job of
helping the management team build this company.
You all know that this company was written off some three to
five years ago. No one really gave us a chance. And despite
that, because of this team we have grown this company. We have
executed against our plan and I think it's fair to say that
we're considered one of the best operating wireless companies
in America. It could not have been done without the incredible
people at Nextel who made it happen.
I also would like to thank Morgan O'Brien. Morgan O'Brien who
most of you may know founded this company. It was his vision,
to cobble together spectrum to make a nationwide company that
really gave birth to Nextel.
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Morgan has been an incredible, incredible contributor to this
company. I've had the privilege of working with him now for
eight plus years. He is a member of our board and I can't
express my - enough appreciation to Morgan for everything that
he's done.
This merger started sometime back in the March, April
timeframe when we were trying to decide whether it made more
sense to jointly build a network, build our own network and so
we started conversations with Sprint and through that process
I got to know Gary.
And I just want to make a couple of points. First of all I
look forward to working with Gary Forsee. I think number one,
he's a good guy and I've always enjoyed him. He's fun he's got
a good sense of humor. And not only will I enjoy working with
him in terms of making this company great, I'll also enjoy
playing golf with him and having dinner with him, because he's
that kind of guy. He's incredibly experienced in this
business. He is - he's got wonderful people skills. He hires
great people.
I think one of the tributes to Gary is if you go down to
Kansas City today and you take a look at the management team.
The people at Nextel that I have gotten to know have been just
wonderful people.
And of course you all know that I'm extremely proud of our
management team here. And you can just imagine putting these
two teams together, with the axis that we have how exciting
it's going to be for us to take on Verizon, to take on
Cingular and in two to three years build the best
wireless/telecommunications company in this country.
Gary's going to lead that charge. I am going to be shoulder to
shoulder with him. We have a great relationship. We both have
good listening skills. We're smart enough to understand that
listening to each other makes sense for
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the business. And we will always do what's in the best
interest of this business.
So it gives me great pleasure to introduce to you today the
President and Chief Executive Officer of the new Sprint
Nextel, Gary Forsee.
Gary Forsee: So how many strokes do I get?
Well Tim thank you and let me welcome everybody that's here in
New York with us this morning and also add my welcome to
everybody that's joining us by audio and webcast.
This is obviously a great day for these two great companies.
And let me thank Tim for those kind words, and I will
reciprocate in just a few minutes.
But as I typically do, let me start by thanking all of our
employees and associates now of both companies, both Sprint
and Nextel.
And I agree with what Tim said, without the execution, the
commitment, the commitment to our customers that happens
everyday in the marketplace, we know how important that is,
without that execution and commitment over the last several
years both of these companies wouldn't have the chance to be
here this morning to talk about combining based on our
strengths.
About combining based on the strengths that we've developed in
the marketplace, our acumen in serving customers, developing
products, deploying technology. This is about one plus one
equaling much more than two.
And because of our employees and because of their conviction
to the strategies that we've had we're here today to talk
about bringing together what is being described as the next
generation communications company.
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But I'd also like to tell you what I'm excited about. I think
we have drawn to what I believe is a perfect hand for
telecommunications. When you think about the assets that we
have that are positioned for business customers and wireless,
broadband, and global IP networks; when you think about the
assets we have that are employed today for consumers, for
broadband wireless, for voice wireless and the opportunity we
have to work with enabling companies that we partner with
today, the cable companies to be sure that we're providing
those next generation converged services to both business and
consumers; we're the only company that can do that.
And the final point I make is about what I'm excited about
this morning is, we have in fact with this merger created a
company that's going to deliver benefit to our employees, it's
going to deliver benefit to our customers with products and
services we otherwise couldn't have done as well at by
ourselves, and obviously the final point, and most important
point, deliver benefit to our shareowners that we think again
is something that's unique because of this combination and by
ourselves we couldn't have achieved.
So obviously I'm convinced, as Tim is that this is the right
time, the right combination, and the right way for our two
companies to go forward.
Let me talk about my experience in the last several months
with the Nextel management team. Like Tim, we've gotten to
know each other. And we've done that through some long hours,
and through some sessions where we've seen our teams interact
with each other already.
And I can tell you the pride that I saw with our team
representing Sprint, and the pride that Tim saw with his team
representing Nextel. But the teams working together to
understand the benefits as we put these two great companies
together, the opportunities that we're going to have are going
to be unique. And both of us were proud of that achievement.
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And I think it speaks to our cultures. I think it speaks to
the passion that our teams have to understand the importance
of winning, the importance of customers and customer care and
customer service. But again, I think most importantly the
passion that I saw with Tim and his team and our teams working
together. The passion that we have for our employees.
So I also want to recognize Tim for what his contributions
have been in his career in wireless. And I think, as I've
reflected in my experience in having known Tim a bit over the
years but now having worked with Tim to make this happen this
morning - Tim is a pioneer. Make no mistake about it. When you
think about the wireless industry and how it's evolved in this
country, Tim has been a pioneer. And he brought those
pioneering skills to Nextel. And out of that, created an
entrepreneurial culture.
And if you think about where his company was in the past four
or five years and where they are today, again I think it's a
testimony to Tim's skills as a pioneer, Tim's skills as a
leader, but also Tim's ability to put together a great
management team, some of whom you've already been introduced
to this morning.
So Tim, I think we're going to have a hell of a time. And I
think we're going to create for our customers, for our
shareholders and our employees, a great opportunity.
You know, as we start this opportunity, we're going to have
many competitive advantages. We have a substantial wireless
base with more than 35 million high value subscribers with the
highest avenue, excuse me, average revenue per user in the
wireless industry. A great place to start. Our customers have
the highest communications usage profile among national
carriers, and have demonstrated a strong interest in advanced
services. We're the leader, in fact, in wireless data
services.
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Additionally, we have the benefit of extensive relationships
with enterprise and government customers. And our ability to
deliver advanced communications solutions across wire line and
wireless networks is simply unmatched. When you think about
the assets that we have, national networks in both cases,
nobody has that. That's unique in our industry.
We have proven market differentiators, like Push-To-Talk.
Highly efficient CDMA technology, advanced high-speed data
capabilities, and wireless business solutions that are being
delivered in the marketplace today. Not promises for the
future. As the combined company, we will strive to integrate
these services across our networks.
And we're going to have products and functionality along the
way. That's what this is about. Taking these two great
companies and where we are today, adding those together, and
creating even more opportunities for our customers.
With substantial spectrum, national wireless and wire line
networks, and state-of-the-art technology, Sprint Nextel will
lead the industry in bringing next generation communications
solutions to the marketplace. And more on that point in just a
minute.
We expect our network migration path, which will yield
substantial capital savings over time, and our efforts to
streamline expenses as we move from two companies to one, will
allow us to realize the synergies that Tim already talked
about, that have a net present value of more than $12 billion.
And finally, the company will set out with substantial
financial resources and flexibility at its disposal as we
launch this great new company. We will be a Fortune 50
company. And I suspect we will quickly be moving up the list
in the coming years.
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Let me talk about products, our brands, and distribution
channels. And you look at this page, again, I hope you feel as
good as we do about what we're creating here.
Our target markets, our brands and distribution channels, we
believe deliver a customer base that will be the envy of the
telecommunications industry. Sprint Nextel differentiated
products and services allow our company to attract high value
customers.
Our rapidly growing subscriber bases today includes nearly
every member of the fortune 500 and a balanced and extensive
presence in consumer and small business segments, which as you
know tend to be the fastest growing segment in this industry.
Our products and services are in high demand. And in the
wireless marketplace, as demonstrated by our customers'
substantial voice usage and industry-leading demand for
Push-To-Talk and wireless data services, where we're the
leaders.
A variety of powerful distribution channels will drive
continued growth. And these include, obviously, a dedicated
direct sales force and respected alliance partners for large
accounts that include Cisco, HP, IBM, EDS Unisys and SAIC.
We have a highly trained indirect sales force. We have quality
resellers and MVNOs which include Quest, ESPN, Virgin Mobile,
as well as several cable providers that we're providing
service to today, and obviously distribution partners like
Radio Shack and like Best Buy.
In total, Sprint Nextel can now provide wire line services to
cable companies passing over 20 million households, enabling
these companies to ramp up
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their efforts to compete against the RBOCs. And as I talked
earlier about convergence for consumers, this is what we're
talking about. The promise of those broadband networks
connecting in the future.
Low cost distribution channels such as our telesales
operations, 1500 retail stores - 1500 retail stores; think
about the power that will create for our brands - as well as
well established internet presence round out our distribution
portfolio.
I think this next chart's very important, because in my
experience and Tim's, this is all about service and is all
about network quality.
And as we've talked about our alignment, and we've talked
about our cultures, let me tell you we had very deep and long
discussions, Len, Tom Kelly, Tim and I, about how we see this
company evolving. We talked about the vision. We talked about
the strategy. And let me assure you, and the customers and our
employees, this is about creating a company that's going to
stand for service, it's going to stand for network quality.
We're going to be the best.
So as we look at the needs of our customers today, we're
committed to bringing this industry-leading expertise and
next-generation services to the market.
Today we offer customers national wireless services and wire
line capability in all 50 states, Puerto Rico and the Virgin
Islands, and we provide our IP services globally. Our unique
mix of assets and depth of communications expertise provides a
source of differentiation in today's highly competitive
marketplace. This merger will effectively add scale to this
advantage. So if you think about bringing Sprint and Nextel to
leverage all those assets to their full potential, that's what
this is about.
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We also have a truly enviable spectrum position, with 53
megahertz of spectrum across the 800 megahertz and 1.9
gigahertz bands. The company will leverage its strong spectrum
position as we move toward Sprint's planned deployment of
wireless EV-DO in 2005.
Sprint Nextel will also own spectrum licenses at 2.5
gigahertz, covering 85% of households in the top 100 markets.
This abundant position really positions us also with
Sprint's tier-1 internet backbone to be an enabler to make it
possible for us to provide the next generation high bandwidth
mobile services. We'll be uniquely positioned to take
advantage of that.
These unmatched capabilities create tremendous opportunities,
obviously, as we go forward with this great new company.
Obviously a lot of interest in technology opportunities. And
we're going to spend a couple of slides on this.
We'll have the opportunity to improve the quality of our
network. And as I mentioned, we spent a lot of time talking
about this very specific point and we actually are investing
additional capital in this plan, in the synergy plan, to be
sure that we have obviously the right coverage, the depth and
breadth of that, as well as new features and functionality.
And leveraging obviously today's position that we have with an
exceptional reliable wire line network.
A significant synergy in this transaction is derived from the
fact that Nextel has substantial capacity at its cell sites to
accommodate CDMA deployments, as we intend to get a fast start
on that opportunity.
We'll have the opportunity to improve coverage by combining
our networks to create a more robust footprint for voice and
broadband data services. We have something over 50,000 cell
sites, tower sites, and we'll be obviously looking to
optimize. But as a result of that, one plus one will certainly
equal
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more than we have individually today which will equal a better
network, a higher quality network for our customers.
We'll have the opportunity to improve capacity and lower our
overall cost, by taking advantage of efficiency of CDMA. And
Sprint Nextel will have substantial purchasing scale as we
work with our vendors to provide additional benefits on the
cost side.
But perhaps our most compelling are the unprecedented
opportunities we'll have to extend our leadership in areas
such as Push-To-Talk. High speed wireless data and integrated
solutions by bringing innovative products to the market ahead
of our competitors. We've shown in the past that we have that
as part of our DNA, and obviously as we move into the future
that will continue to be a very important part about what
we're about as a new company.
Something I know is very attuned to issues on your mind in
terms of the network technology and the evolution path. And
again, we've spent substantial time - that's really how these
discussions started. As we started to understand our prospects
within Sprint of deploying CDMA and EVDO into the future, our
opportunity for wireless broadband mobile services as an
opportunity we have that were unique, Nextel found itself at
the same point. So as we started to have those initial
discussions, we started to understand the opportunity to
converge and migrate those networks into the future.
So this chart shows that in 2005 our current individual plans
for CDMA and the IDEN network build out will remain really
largely unchanged. And this includes Sprint's deployment in
2004 and 2005 of EV-DO.
We'll also finalize our product direction for interoperability
with Push-To-Talk services between the two networks. A very
important issue as we launch this new company.
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And finally, we'll implement a site sharing arrangement, as I
alluded to earlier, in 2005, to allow Sprint Nextel to benefit
from co-location opportunities across our cell sites.
In 2006 from this chart you can see that those co-location
efforts will continue. But we'll also start to begin to
consolidate our network organizations. Obviously operating two
networks and building out the capacity and the requirements
that we have will extend that opportunity to work with the
network organizations. It's something that's very important to
ensure that we keep the quality, keep the coverage, and keep
that network quality best in class.
We'll take our first steps in 2006 to start to plan the IDEN
transition to CDMA. Again, to manage the transport networks
that we have and complete phase one of our national EV-DO
rollout.
During the year, we also expect to deploy a Push-To-Talk
service that operates seamlessly across IDEN and CDMA
networks.
2007 will be focused on developing voice-over IP and
Push-To-Talk capabilities with the next generation EV-DO
technology release A. Something that again is very important
to the road map and very important to our ability to take our
customers to that next generation data network.
And finally, in 2008 we'll launch Push-To-Talk over that EV-DO
release A, which will also allow us to begin to transition
IDEN into a mode where we take full advantage of the CDMA
network.
But as is pointed out in that top right chart, we'll also have
the opportunity for this Push-To-Talk with this IDEN network
to continue to have a utilization. For those customer that are
Push-To-Talk centric for security purposes, for
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issues around the provision that we have today for those
customers and users in public safety to continue to utilize
and take advantage of this network. So we'll continue to take
a look and have discussions with those interested in that
network and in that future opportunity.
But I'd also like to mention in this 2005 and 2008, we'll have
a unique opportunity because of our spectrum position in 2.5
gigahertz combined spectrum to begin to think and begin to
plan for what that mobile broadband network can look like. And
we'll have an opportunity that really will be unique. As I
mentioned earlier, we'll cover 85% of the top 100 markets with
our spectrum position. So we'll be positioned to take
advantage of that opportunity should we choose to pursue it.
And we'll have a competitive advantage in that particular
case, given that opportunity.
Let me move to now a discussion about synergies. And I think
to kick this off, let me add to what Tim said. This is about
growth. And certainly the term synergy implies merging
organizations together, and reductions that typically are as a
result of head count reduction. And this is not about that.
Certainly as we rationalize our organizations, there will be
headcount impacts. But this is a growth story. This is about
ensuring that as we look at our technology deployment, as we
rationalize the organizations that we have today are
Washington and Reston centric and Kansas City centric, that we
rationalize those organizations in a very logical way.
So as you can see, these synergies - $12 billion dollars is
what we've identified - a very significant opportunity and
obviously one of the attractions that we had as we started to
have those discussions.
We expect to be able to accelerate the network expansion and
capacity improvements, which will improve customer loyalty.
And we'll make
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investments along the way to ensure that we take advantage of
these two networks, to be sure that our customers are getting
the best.
In addition we'll have the benefit of up selling long distance
service into Nextel's customer base. And again, one of the
attractions that we saw was Nextel being predominantly
business oriented, the applications that they have today that
are very sticky around the Push-To-Talk and the opportunity to
take to that customer set the Sprint IP network, the long
distance network capability if we will, into that base. And
that's a very key part of what the opportunity will be in the
future.
We'll obviously have the opportunity to rationalize over time
and optimize the rate plans that wireless customers that will
have into the future.
We'll lower our network operating expenses as the number of
cell sites and switches are reduced over time, and our
organizations are integrated. We'll also reduce SG&A expense
to begin rationalizing our sales and distribution and
marketing efforts, back office integration, and consolidated
infrastructure meaning network and IT support.
And finally Sprint Nextel will realize significant capital
savings by migrating Nextel's back haul to Sprints wire line
network. We'll rationalize our IT and billing systems, avoid
duplicate investments in wireless high speed data networks
which again are a key part of this merger, and taking
advantage of cell site co-location.
Obviously, that doesn't come without cost. And certainly one
of the key issues that we've already identified and dealt with
is our brand. And certainly you can see today we're very proud
to stand before you and talk about the branded new company
being Sprint Nextel. And as we move forward, we'll obviously
be establishing a new brand. A new company. Associated with
the
18
spinout of Sprint's local operations. And that new branding
will be created as well.
The integration costs will include how we integrate back
office. And certainly as we go through facility and contract
terminations or costs associated with that, we're going to pay
particular attention to our employees as we both talked about.
That's why we're here.
And so our employees can expect at Sprint and at Nextel that
our process is going to be very tuned to transparency about
how important it is to be sure that they stay engaged and stay
focused, but also to be sure they know the opportunities. And
this is about win-win. And they have to be a key part of that
discussion.
So retention programs and severance programs consistent with
that message about how valuable they are will be very
important.
We've already identified as Tim Donahue mentioned earlier, two
co-chief transition officers. And Rick and Steve are going to
do a great job hitting the ground running starting today as it
relates to planning for the transition that will obviously
kick into place after we close the merger.
But it's important during 2005 that we begin that planning
process and we start to get the level of familiarity with the
details within the operations. And we will hit the ground
running. And Steve and Rick are going to do a great job. Tim
Donahue and I have already given them their first marching
orders. That's supposed to be funny.
Let me talk now and show you how the synergies lay out. From
this slide I think you can see that we have again, spent a lot
of time on this to be sure that we have a very realistic yet
achievable targets for the three years following the creation
of Sprint Nextel.
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And as you might expect, most of the integration costs are
certainly front-end loaded and while you see those savings
which are significant ramp-up over that period of time.
I'll point out that we expect to get off to a fast start in
2005 and 2006 with more than $500 million of operating expense
synergies and even greater level of capital savings.
In 2007 what you see is investments that we're making as we
get the CDMA network ready for the conversions and we get
ready for the sell-side expansion that will occur during that
period of time. And the CDMA that will be deployed onto the
Nextel network during that period of time shows that capital
expense in 2007 to support that.
And as you see from the chart, the operating expense synergies
are in the billion dollar range by the time we get out to
2008. And I would also note that we laid out what I consider
to be a fairly conservative opportunity for revenue synergies.
I already indicated the opportunity to sell long distance
service, the opportunity to cross-sell across those market
segments that we serve today is a very significant
opportunity.
Many of you are aware that Sprint has been adding roughly 2000
cell sites per year to expand its network. That plan that
we've established includes continued aggressive expansion in
this area. And a key factor here is our ability to collocate
onto existing Nextel sites. By 2008 we'd expect that 14,000 or
roughly half of Nextel sites will host CDMA equipment --
again, a key part of the synergy discussion and a key part of
our capital savings.
Sprint Nextel will begin realizing material costs benefit on a
net basis once the integration process is completed during
2007.
20
Let me talk now about what you can expect from the financial
strength and flexibility and certainly with our two CFOs here
today and Paul designated as the CFO of the new company. We're
starting from a great position.
Sprint Nextel will enter the market with significant financial
strength and flexibility which is very important with the
investments and with the opportunities we have to grow this
business.
Prior to the spin-off of Sprint local, we expect to have
leverage in line with our prospects for growth and consistent
with other investment grade companies. We will also look to
reduce interest expense as the strength of our balance sheet
may create opportunities to refinance our outstanding debt
that we have today.
While we did not anticipate that Sprint Nextel will pay a
dividend, the company's growth profile and cost structure will
support the substantial cash generation to enable further
leverage reduction over time.
Finally, let me talk about Sprint's local operations. And
again, we're very proud of what this division has produced
within Sprint as part our culture, part of our heritage. And
again, that organization's great performance has allowed us to
consider this unique opportunity to position two companies for
the future and again, a very positive day for our associates
associated with this very important business.
Immediately following the creation of new Sprint Nextel, the
local telephone business will be spun off as a separate
publicly traded company. Sprint's local business has
demonstrated tremendous success in selling bundled services
with its highly regarded 18 state local footprint which covers
several high growth areas including Florida, Las Vegas, North
Carolina.
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The business which has 7.7 million local access lines in 18
states with more than $6 billion of revenue over the last four
quarters. And as Tim Donahue mentioned, this will be the
largest independent local telephone company in the United
States.
This company will be composed of Sprint's local
telecommunication division's assets and operations including
consumer, business and the wholesale operations. It will have
its own management team and board of directors including
current directors from Sprint Nextel.
The inclusion of Sprint North Supply in the spin-off will be
determined at a later date depending on the valuation of
certain tax and strategic decisions that we'll make.
The local unit will have commercial operating agreements with
Sprint Nextel for mobile and long-distance network services
and certain transitional services tied back to corporate
center support.
They will continue to provide current high quality service
that's sold in simple yet very valuable bundles to the
customers that we serve. This company is expected to continue
to produce strong cash flows. And we will establish a capital
structure that is appropriate to its financial prospects
including a dividend policy commensurate with its own business
plans and needs but consistent with ratio of payouts of the
peer companies that we compete with.
In conclusion, let me wrap up by saying obviously how excited
I am. And I hope that comes across in my comments and
certainly in Tim Donahue's this morning about what we think
we're creating as we stand before you and describe America's
premier communications company.
We truly are creating this as we make this announcement today.
It's obviously up to us over time to deliver on these
expectations that we're establishing. But
22
I can tell you after the last several months of engagement
with Tim Donahue and his team, I'm more confident than ever as
I stand here before you this morning that this team has what
it takes, this is the right time in this industry for these
two companies to come together to take full advantage of the
synergies, to take full advantage of the capabilities, but
most importantly, take full advantage of the entrepreneurial
spirit and the innovation that has set us apart from
competitors to this point in time and imagine the power of
these two companies coming together as move into the future.
What I'd like to do now is to certainly begin the next
important phase of this discussion that Tim Donahue and I
would like to entertain your question. I'd like to also again,
reintroduce Len Lauer, Paul Soleh, Barry West, Bob Dellinger,
Steve Nielsen and Rick Orchard who we may ask to get some help
on some of the questions.
We obviously have microphones in this room available and we'll
be taking questions on the phone as well. So at this time I'll
act as the broker for the question process and Tim Donahue and
I will tag team in response and ask for help as appropriate.
So if you would not mind designating your name as you stand
up, that would help Tim Donahue and me with the glare of the
lights please.
Operator: For the participants on the phone, if you have a question,
please press star zero. Thank you.
Jason Bazinet: Hi. Jason Bazinet at JP Morgan. I was wondering if you could
just talk a little bit about your appetite to do incremental
meaningful wholesale agreements on the wireless side, not so
much with the niche agreements that you have now with Virgin,
but more on the cable side. Thank you.
Gary Forsee: Yes. Let me start, and then I'll ask Tim Donahue to comment.
Certainly from a Sprint perspective looking back, we concluded
that partnering is a great,
23
great way to add scale, scope, and provide additional
value-added benefits in the marketplace.
Our strategy whether it's been called MVNO or wholesale has
been about how we find companies and brands that can take the
Sprint position in the marketplace in places that we may not
have been able to get with the Sprint brand and set of
services.
So as we've launched Virgin mobile, as we partner with Qwest,
as we partnered on announcement two weeks ago with ESPN, those
are all very important recognition that partnering with those
brands could take us to a place for network scale, scope and
brand positioning that we may not be able to achieve
ourselves.
So I've thought about it, Len and our team have thought about
it as much as a second brand strategy as opposed to perhaps
historical ways of thinking about wholesaling.
Certainly as we form our new relationship with Sprint Nextel,
you know, we'll evaluate opportunities that come along. But
certainly we've already identified by our comments this
morning because we're working with the cable industry today
providing voice-over IP service as part of the enabling
strategy as those considerations are made, but certainly the
opportunity to work with them as they understand as we do the
converge opportunity of the broad band network and the
wireless data and broadband services we provide. A great
customer experience is to create a common experience for those
users.
And Tim Donahue and I are aligned with our teams that we
believe we have a great story to provide to that part of the
industry, to that part of telecom and communications industry
and we'll be about describing that opportunity with them. Tim
Donahue, you may want to comment.
24
Tim Donahue: Just a brief comment. Gary covered the salient points. Here's
what I would say. This company with its nationwide footprint,
its capacity that we'll have as a result of the spectrum and
the technologies that we're both using. It's a wonderful
opportunity for content players and others to utilize that
network if they so please.
Now if that comes in the form of MVNO, fine. If that comes in
the form of a joint venture, fine. But my perspective is that
the world is going wireless. And there are companies out there
-- we've already seen it and Gary has outlined some of his
MVNOs -- the cable companies clearly are looking for some sort
of wireless play.
And I think this company is extremely well-positioned because
it's a network, because of our capacity and because of our
ability to understand partnering. And I think we do that
better than anyone. I think we can be remarkably successful in
attracting partners and driving topline revenues.
It's about wireless. It's about data and it's about broadband
deployment. I think all of those terms work with the kind of
opportunities that we see in the future.
Man: Thanks. Thanks, Gary. In Las Vegas for example, where you're
currently the ILEC, will the new Sprint Nextel be better or
worse positioned at targeting customers let's say each
consumer, small business, large business without having the
ILEC in house?
Gary Forsee: Obviously we've made the conscious decision that it's in the
best interest of our again, constituents of our customers, our
employees and our shareowners to make the decision to spin-out
of local operations.
And as we do that as I mentioned earlier, we're going to equip
them with the products and services that they need to compete
in that local market including
25
long distance services which they provide today including
wireless access to wireless service that they again provide
today as part of that bundle.
Certainly as Sprint Nextel is formed and competes in Las Vegas
then our paths will diverge after Spinco is established into
that new environment after that local operation is
established.
And as we look again to partner with cable companies and that
certainly would be an opportunity that would be available in
that future context versus where we are today in terms of
providing those services by ourselves.
So I think Rick, my answer is there will be very competitive
opportunities for both companies, Sprint local divisions
competing as we do today very aggressively around the country
in the market because of the hyper nature of the competition.
And certainly Sprint Nextel will be very well positioned in a
wireless sense or perhaps in the future with other partnering
opportunities with cable.
Chris Lawson: Chris Lawson from Prudential, a couple quick questions here.
Any plans, interim agreements for data or LD sales or
Push-To-Talk product between companies before the deal closes?
Certainly the CAPEX savings that you outlined, does that
include the fact that Nextel would not be building out a 3G
network or a (unintelligible) point in time would be combined
utilization?
And lastly could you just - your thoughts on (unintelligible)
whether you might participate in that or not?
Gary Forsee: Do you want to take the middle question on the capital
deployment?
Tim Donahue: Yes, the synergy assumptions on the CAPEX side assume that as
Gary showed on his slide in his presentation that we will be
migrating to the EV-DO Rev A 3G network.
26
You should understand that the IDEN network we are going to
continue to obviously grow the IDEN network. It's going to be
very vibrant through the '07 timeframe. We'll be expanding the
footprint. We'll be sure we have enough capacity.
In the interim we're going to be working on the push-to-talk
product on Rev A. And so the synergies that you looked at
assume that that's the 3G network of the future.
Gary made a very good point in his presentation. I think that
the IDEN network has a very long life. And the Nextel folks
and the Sprint folks as well have done a very good job in the
government area and the public safety area.
And it is my hope and expectation that we can extend the life
of IDEN through offering products and services to public
safety, government, and push-to-talk centric businesses who
can take advantage of this great network that's already built
and has a terrific footprint across the country. Does that
answer your question?
Gary Forsee: Yes, the comments on the other two questions, certainly
interim agreements, obviously until we close we're going to
compete vigorously in the marketplace against each other.
That's the rules. And obviously we'll follow those rules to
the T.
Certainly if there are opportunities for commercial
agreements, we'll consider commercial agreements that may
allow us to have something that would have to be sustainable
into the future. And that certainly is the legal test that
we'll have to work with.
27
So this will be more about planning for the plan that will be
executed after the close. And as you know, that's the way the
legal rules work. And so we have to be very cognizant of
regulatory approval processes.
And is relates to Auction 58 as indicated, we're going to have
over 50 megahertz expected which is a great place for us to be
as a combined company.
We'll look at Auction 58 to see whether there are needs that
we would identify beyond what would be achieved by the
combining of the two companies. And whether we decide to
participate or not is to be determined.
Okay, I'm sorry.
Jake Newman: Jake Newman, CreditSights. Could you talk a little bit about
customer reaction and total value for the customer? There's a
disparity between the churn rate in the two companies, the two
networks. What assumption in the net present value number that
you are using do you make about change in the term? Also could
you relate that to parts of ARPU. There's a disparity in ARPU
between the two networks as well. Thank you.
Gary Forsee: Yeah maybe this is one to ask Len Lauer to comment and maybe
ask Tom then to come in as well because we've done a lot of
work dissecting the customer bases as we work through
synergies.
So Len I'm going to ask you to comment about that if you will,
Len, for Michael.
Len Lauer: I think from a customer's standpoint we'll have very positive
reactions from our customers in terms of the additional
unintelligible identified by Tim and Gary that we can use a
divine company going after conversions.
28
On turn, obviously from a Sprint standpoint we have higher
turn than Nextel. We do have in our plan over the next couple
of years to bring turn down as we have over the last two years
and we see that trend continuing.
And I think as a result of our combined network we also see
further opportunities by having enhanced coverage. Because the
Number 1 reason for a wireless customer to turn is due to poor
network coverage.
We believe between the companies we can also improve turn
performance. And that's partially in this synergy in terms of
sub term improvement. But it's not very aggressive beyond our
normal operating plan.
Man: (Unintelligible).
Len Lauer: Yeah, I think the other piece too when you take a look at the
turn between the two companies we also have a much higher
exposure of Sprint to consumers. And Nextel has a much higher
exposure to business.
And typically you have higher turn in consumer. We also give
the consumer environment you bring on a much larger basis,
something like credit customers. So when you take a look at
involuntary turn, I think we've reported of our turn that was
2.7, 1.2% of that came from involuntary where Nextel
involuntary is much lower than we have because we're much more
consumer. And so that's why you also have the gap between the
turn numbers.
Gary Forsee: Tom.
Tom Kelly: (Unintelligible). On the ARPU side, obviously at Nextel we
have a higher ARPU today but their composition of our ARPU I
think is very complimentary.
29
Sprint has done a wonderful job in building their data, our
proof for customer. And I think as we move forward with the
very specific data platform that we'll have on data strategy,
the opportunities will be for Nextel to actually add to the
data revenues that we have.
And this is - there's another issue around Push-To-Talk.
Clearly Push-To-Talk has been a main differentiator for Nextel
and has contributed significantly to the building to generate
our ARPUs as we maintain our position in terms of leadership
with Push-To-Talk and continue to convey that across the
companies. I think you'll see also improvement on even the
consumer side.
Push-To-Talk is the ability for that product to have a great
influence on the consumer market is really there. And the fact
that we have the experience to make it a performance product,
we have the understanding about how to market the groups of
which families are very important, I think you're going to see
a huge benefit to that, and I think we know how to do it. I
think combined with Sprint we'll do it better than anyone else
in this business.
Tim Donahue: If I could, Gary, just make one comment.
Think about the power if you will of the Nextel network with
its Push-To-Talk capability and the power of the Sprint
network with its considerable data capability. Think about a
dual mode phone that will be developed by Motorola.
And by the way Motorola, first of all is going to have a long
life with this company. They're going to continue to support
the Nextel network to the '07 timeframe. And they will be very
instrumental in building for us a dual mode phone.
30
So you'll have the instantaneous nature of Push-To-Talk on the
IDEN network coupled with interconnection and the data
capability on the CDMA/Sprint network with a set of handsets,
a collection of handsets that will be better than anyone
else's in the industry.
And you talk about a customer perspective, from my point of
view it's a very compelling product. It's a differentiated
product. And that's what made these two companies straight,
differentiation on voice and Push-To-Talk at Nextel
differentiation clearly on data with Sprint.
Gary Forsee: And final point is imagine, the Push-To-Talk capability for
business customers that have been developed with applications
imagine that product opportunity being taken into the position
that Sprint has historically had in the Fortune 1000 in the
business space with our enterprise data and wire line network.
That's a capability that we've had that we integrated Sprint
in 2003 and 2004 to bring those capabilities together. Imagine
adding onto to the top the Push-To-Talk and the applications
that Nextel brings to this combination. It's pretty powerful.
I think we've got some questions on the phone if we could go
to the phone for the first.
Operator: Alright, thank you.
Our first phone question is from David Nensick, Wellington
Management Company, Boston, Massachusetts. Sir you have the
floor.
Gary Forsee: Morning, David.
Gary Forsee: David, are you there?
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Gary Forsee: Go ahead, David.
Gary Forsee: See you, David. Next question.
Operator: Okay, we'll go try next question. Our next question is from
Blake Bath, Lehman Brothers. You have the floor sir.
Gary Forsee: Good morning, Blake.
Blake Bath: Thank you, good morning.
Tim Donahue: Good morning, Blake.
Blake Bath: Can you hear me?
Gary Forsee: Got you, go ahead.
Blake Bath: Okay, very good. I wonder if you could just speak briefly
about the number of employees in total you're going to have
once the LEC spin-off is done and the redundancy is
eliminated. So kind of an end of '06 view and how many are
going to be in Kansas City versus Reston so we can just
understand that dual headquarters.
And maybe further to that question, can you - you outlined the
top seven or eight positions in the company. How far down have
you've gone in your planning at this stage? I mean have you
gone to the top 50, top 100, if you could just let us know on
that that would be great. Thank you.
32
Gary Forsee: Let me start on the second part and ask the people to start
thinking about the first part because there's some high order
math involved there.
But the second part I'll comment on and then ask Tim as well.
We spent a great deal of time. And Tim and I, Len and Tom to
talk about organization design because I think it was
important given where both of us have been coming from. Sprint
obviously multi product division in the past two years moved
into customer focus division business consumer; Nextel
obviously coming from a heavily dominated business space.
So we spent time together to be sure that we had the common
vision about how to start this new company and how to take the
best, you know, set of assets that we had meaning our
employees to be sure that we create a win, win for that.
So it does speak, Blake, to our care about understanding the
importance of our employees in Reston and our employees in
Kansas City to be sure that as we go through this process,
that we're ever mindful that our competitive advantage at the
end of the day is our employees and our associates.
So we spent a lot of time on the organization design the
philosophy about creating an operating headquarters and an
executive headquarters.
And I think we've got that figured out. And under the banner
of ensuring that we do the right thing for our customers, our
shareholders, and employees, then we I think we have a clear
understanding that it doesn't make sense to move thousands of
people from Reston to Kansas City and thousands of people from
Kansas City to Reston. We ought to be able to figure out a
smart way of doing that.
33
At the same time we clearly will have to rationalize
overlapping organizations. So make no mistake about that.
We're very clear that at the end of the day this will be about
rationalizing and downsizing and having a cost competitive
structure going forward. That's the basis competition.
But we're going to do that with a lot of care and a lot of
attention.
So let me as Tim to comment perhaps on our process that we've
described amongst ourselves for how we'll take the next step
for our people.
Tim Donahue: Gary and I, Tom and Len spent a considerable amount of time
discussing this very point.
And obviously you see that we have named the top five or six
positions in the company. The intent here is for Gary and I
and the Senior Team to have the opportunity to meet and
understand the talents on both sides.
And that's obviously going to take some time. We'll have to
finalize exactly the way the organization will be structured.
And so I would say over the next 90 days or so we're each
going to be getting very familiar with the others management
team. We have a process in place by which we'll do some
evaluation and then we'll begin to put people in their
appropriate roles.
I think it's important to point out as Gary said in his
presentation that this is a growth story. That a lot of the
synergies that we're talking about come from CAPEX savings and
network synergies, this is obviously going to be attrition in
the employee base.
And while Gary's absolutely right we will rationalize the size
of the organization. We will deal with overlap.
34
On the other hand when you have a company that I believe has
the growth potential that this company has to me it speaks to
great opportunities for the employee base. And Gary's
absolutely right.
You know, we have Washington, we have Kansas City, we will
rationalize what makes sense.
Wholesale movement between those two geographies doesn't
necessarily make sense and may at the end of the day be more
costly.
But both Gary and I are dedicated to running an efficient
organization. You've seen that in our margins, you see it now
in Sprint's margins as well. And rest assured that we will do
what's right in terms of driving efficiency.
Gary Forsee: Well I did a little quick math for you, this won't be precise.
But today Sprint roughly has 60,000 associates about 17,000 of
those are in Kansas City.
Today Nextel has about 17,000 associates and about 4,000 are
in the Reston area.
We would expect as we spin out our LEC operation that would be
roughly 22,000. So if you do that math just straight up you
end up with an organization of Sprint - Nextel, you know, in
the 55,000 range.
And obviously as we've indicated over time we will rationalize
and make decisions about the balance of the organization.
But I think from our comments you understand where the
starting points are and obviously the transition period will
deal with the rest.
Blake Bath: Okay, thank you.
35
Gary Forsee: From the phone please, one more.
Operator: Yes, our question from the phone line now comes from Tom Watts
with SG Cowan, New York City. You have the floor sir.
Tom Watts: There've been a number of comments from the press about
Verizon possibly bidding for Sprint as well, then comments
that they're not going to bid.
Could you give us any comments on this what Sprint
shareholders should think of this?
And also with the prospects for regulatory approval of that be
substantially different than for the deal you're proposing?
Gary Forsee: Well, Tom I think you would have to ask them what they're
strategy is. I think certainly from our perspective, Sprint
perspective first and I'll let Tim comment on the combination
that we're announcing including this morning. We believe this
was the best opportunity for us to create value without
question, the best opportunity for us to create value for our
shareholders.
And as we look at the description of this company that we've
created this morning, I hope you would agree with that.
So as our process in the last two years has gone through first
transforming Sprint ensuring that we were operating and
performing consistent with our shareholder expectations but
also defining of strategy for the future, what we've defined
for the future is what we've announced this morning, a company
that has an opportunity for converged networks both at the
business and consumer level the opportunity to spend our local
business to make sure that we create value for our employees,
our customers, and our shareholders.
36
So I think we've figured that out along the way and as we
figure that out Nextel came to the same conclusions. And as
Tim and I started having those discussions, it became clear
that we had a common vision about the industry, a common
vision about how to create value, and obviously that's
resulted in the merger of equals that we've announced this
morning.
So we're very positive about that Tom. And what others may
think about either one of our companies that's up for them to
decide. And certainly our shareholders and our Boards of
Directors are a key part of that equation.
The regulatory process, you know, we believe certainly is
coming off Cingular in AWE. We will go through that process in
a quick pace with the FCC and the Department of Justice and
with the states, all very important constituents. And we would
expect a time line certainly not to exceed what Cingular and
AWE went through and we're very bullish about that.
Operator: Thank you.
Gary Forsee: You bet. You're welcome. Tim, do you want to comment on that?
Tim Donahue: I think you've said it all.
Gary Forsee: Okay.
Tim Donahue: Thanks very much.
Gary Forsee: Back in the room here, please, morning.
Mike Rolands: Mike Rolands, Smith Barney.
Gary Forsee: Hi, Mike.
37
Mike Rolands: Hi, a couple questions for you. First on the synergy side on
the cost expectations, Sprint already has an aggressive cost
cutting program in place.
Is the synergy incremental to what you expect Sprint on a
stand alone basis to save let's say over the next couple of
years?
And then Tim if you could just comment on the public safety
spectrum slot and how that gets into the process over the next
few years clearly there's a lot of moving pieces to get that
done and how it effects the network integration plan?
Thank you.
Gary Forsee: Okay, first question, we've been very transparent about our
three year plan, about our targets. We identified one billion
plus as we came into 2004 we're tracking against that
obviously in very good stead. So, yes as we've shared our
numbers with Nextel and created the Sprint Nextel numbers
going forward they would have taken into account our run rate
and plans that we already had in place that would accrue
benefits on that basis.
So the numbers that we described this morning would be
incremental to that.
Tim Donahue: The combination of the two companies has very little effect on
the spectrum swap. Obviously we're going to get on with that
in very quick order. I think you all should know that we're
expecting to have some sort of ruling on the spectrum swap
very soon.
And I'm very hopeful that it's going to be a positive outcome
for the company. I think it will be.
In terms of the actual work that has to be done over the three
year period of the spectrum swap, obviously we'll get some
benefit in the '06, '07 timeframe
38
as we introduce a dual mode phone and to take some of the
capacity that would typically go on the IDEN network and push
it over to the CDMA network.
So this combination is very helpful in terms that it will
relieve some of the capacity issues that we will be facing
when we begin swapping out of the 800 megahertz level.
Mike Rolands: Thank you, Gary.
Gary Forsee: How about from UBS.
Man: A couple of quick questions on the local spin. First of all,
can you give us an idea about the timing? What kind of a
leverage ratio do you think this spin out, local service
companies can support? And then thirdly, in terms of the
dividend, when you said similar comparable companies are you
thinking more of a higher dividend yielding company like a
Citizen's Communications or a more conservative structure like
Century Tel?
Gary Forsee: Yeah, the first question - we're certainly planning an
aggressive approach with states for approval of spin but it
will take longer than the merger of our two companies so we're
expecting that some period of time, roughly six months after
the close of our merger which we would expect to occur in the
second half of 2005. The opportunity to then spin the business
to our shareholders would occur. So obviously we're talking
about a period of time -- 9 to 12 months -- for that to occur
versus kind of 6 to 9 months for the merger to be approved.
And as it relates to leverage, obviously we paid a lot of
attention in our discussions to understanding kind of where to
set the parameters. I think what I say at this point in time,
John, is that we're solving kind of three parts of the
equation. We're solving certainly the leverage part of that
equation in
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terms of how to position the spun entity into the future to be
sure that their cash and their capital requirements can be
made.
We've got a great business plan for that company as it sits
today. So the plan for that company would be consistent with
where we set today and how we think about those kinds of
metrics.
The second piece obviously is to certainly understand that
today the Sprint owners, you know, see a dividend. And as we
think about the dividend policy going forward we've already
said this morning that we will not pay a dividend to the
Sprint Nextel shareowners in the future and our process would
be that as we close, so between now and close, we will
continue to pay as we do today.
From closing Sprint Nextel to completion of the spin, we would
then pay at an amount that would be reduced to the expected
level that the new entity would pay in the future. And
obviously then at a future point that dividend would only be
paid to the entity that would be in the spin. So I think that
gives you kind of the stair step approach.
And the third dimension of that so we've got the leverage,
we've got the dividend. The third dimension is that we want to
have a set of metrics in place that would point toward
investment grade. We think that's also a dimension associated
with that.
So today it would be premature to say, you know, exactly where
we would pen each of those dimensions but I think we clearly
understand how those dimensions connect and as we come out and
speak in more detail to all of you in the next several months
we'll be able to get into some of the specifics about that.
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But I think for this morning I want to be sure that you know
we understand how those inter-relate. We understand the
competitive reference points that are out there and again, we
think this is an opportunity to appropriately lever but also
consistent with expectations and policies that tie the other
two pieces together.
I think we have time for one more, Todd, please.
Mike Hoffman: Thank you, Mike Hoffman at FBR.
Gary Forsee: Hi, Michael.
Mike Klone: Gary, a question on customer service is obviously been -
customer care and customer service at Sprint has been an issue
that you're in the process of improving. If you could outline
how once the two companies merge, how that may change.
And then the second thing is, assuming that this closes in the
second half of 2005, then how quickly will you move to
integrate the Nextel Cup with Sprint, you know, Sprint
initiatives as well? Will we see immediate driver phones as
well for Sprint customers on both networks and things like
that? Thanks.
Gary Forsee: The second part of your question is something I'm particularly
excited about and as we've talked about the great
relationships that we have within the two companies certainly
one that stands out is the NASCAR relationship and I look
forward to getting to know that team and certainly that's
going to be an important part of that. So certainly you can
expect in 2005 because we're in flight already with the
planning for that, that it would be the Nextel Cup in 2005 and
we'll certainly work with the appropriate branding for that in
the future.
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Tim, I don't know if you want to comment further on that but
that's an exciting opportunity for us as a new company.
Tim Donahue: Yeah. Well, Tom Kelly was the architect, God bless him, of the
Nextel NASCAR relationship and he's probably more qualified
than any of us to answer that question.
Tom Kelly: (Unintelligible). Well, NASCAR wanted to come help us
leverage. I mean the only thing to really say about this is
the NASCAR relationship has been a very exciting relationship
for Nextel, probably the most or the best investment we have
made in marketing since we've been in the business.
It also expands the opportunity beyond the small, medium
business category to all the (unintelligible) consumer
category and those of you who have talked to us about this
before, you know that there's 75 million NASCAR fans out
there, 40 million of which are avid. That is a mix of business
and consumer.
When you add the two of these together with the branding that
we've done and the opportunities for these combined companies
together, this opportunity is going to be probably one of the
best marketing tools that we will have to continue to
penetrate in a marketplace we want with higher ARPU, more
loyal and frankly, more application rich and open customers in
the future.
So I think it's going to be fantastic time. I've spoken with
the NASCAR family, DeFrancis, all the folks associated with
this. They're very excited about it. They see it as a great
opportunity not only for a great sponsorship relationship but
also continuing to build this sport. And I think they are just
as excited; and in fact I know they are, as we are about this
opportunity.
Tim Donahue: Tom, why don't you hand off to Len, let Len talk about
customer care.
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Len Lauer: Yeah, on customer care, yes, we are making a lot of progress
on Sprint but we still have room to go. (Unintelligible)
really excited about the combination is that we had made the
decision to co-source our customer care to IBM; Nextel also
made that decision about two years in front of us. So we
believe we can take the strengths of that partnership with
IBM, take the learnings in what Nextel's had a couple of years
in front of us to be able to implement that on the Sprint
side.
Secondly we're looking at systems in terms of the common
systems we have, in terms of the back office billing systems,
CRM systems as Tim Donahue mentioned, really taking the best,
that will give us the most flexibility, the best cost moving
forward.
And third is we've also taken a life cycle approach in terms
of Rick Orchard who'll be leading the integration for Nextel,
has a lot of experience (unintelligible) work with all the
different touch points of the customer and how to optimize
this to improve the experience.
So when you look at IBM, when you look at the combination of
our systems, when you look at how we approach the life cycle
touch points for our customers along with expanded
distribution, along with the enhanced systems, we believe that
we can make very, very quick progress together much quicker
than we could have done on our own.
Gary Forsee: Yeah, and I would just add, Michael, I think it's without
saying, it's job one, two and three has been at Sprint, has
been at Nextel, will be at Sprint Nextel.
Certainly the components that Len talked about are critical.
Network is critical. We spend $2-1/2 billion in 2003, about
$2-1/2 billion in 2004, on network quality coverage and so
forth. And our network is now being recognized for that
improvement. We have been recognized the top network by JD
Power on the East Coast and West Coast so we're putting our
money where it needs to be in that regard.
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And the final piece, if you look at our consumer office of
today, Fair and Flexible was designed to begin to kind of
demystify what wireless has been about from an offer and we're
getting again significant uptick as it relates to that product
and recognition by customers that that is the right way to
approach it with that part of service.
So it is all wrapped together and we think we have a clearer
understanding of where we've been and investments we need to
make and the progress that's being recognized by our customers
as we move forward.
Well, let me wrap up and then ask Tim if he wants to say a few
words. Certainly I hope you see from our enthusiasm how we
feel about this morning. We've been working very hard at this.
I would also like to thank our collective set of advisors that
have also worked very hard to, in a relatively short period of
time, bring this together. This is a magic day for these two
companies; make no mistake about that.
And I think over the next several weeks you're going to see a
lot of Tim and I and our teams out with certainly our
employees starting tonight and tomorrow, with our customers
starting today and with our investors starting this morning
and the course of the day to be sure that you have a clear an
understanding as possible about what's being created.
This is about, and make no mistake about it, this is about
creating the next generation communications company. We have
the best assets to do that, this is the right time to do that
and we're going to execute and deliver against that promise.
Tim?
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Tim Donahue: Thank you, Gary. I would just echo some of Gary's comments. If
you look at the basket of assets that this new company will
have, if you look at the extraordinarily talented management
team that this new company will have, if you take a look at
the strategies that you will see as we continue to detail the
story for you in terms of how this company with its size and
with its scale and with its product sets will be an
extraordinarily competitive wireless/telecommunications
company in this country.
We very, very much look forward to competing. I can't wait; I
can't wait to put this company together, to work closely with
Gary, to bring out a product offering that will be the best.
And so I am chomping at the bit to get started.
I want to just say that the relationship that we've
established between the two companies I think is fantabulous.
I very much look forward to working with Gary. I very much
look forward to working with the Sprint team and I know that
our folks feel the same way. And so let's just get started.
Thank you very much.
Gary Forsee: Good job, buddy.
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