New York Sprint Nextel Corp. said it will start phasing out the Nextel part of its network in 2013, a decision that follows near-constant subscriber losses since Sprint bought Nextel in 2005.
The shutdown should be complete in 2015. Sprint, the country's third-largest wireless carrier, had said it would eventually shut down the aging Nextel network, but hadn't said when until Monday.
Nextel's signature feature is its fast push-to-talk function, which resembles a walkie-talkie. It once made Nextel popular with outdoor workers such as construction crews. However, the network doesn't support fast data transfers, making it unsuitable for smart phones. Sprint plans to offer Nextel subscribers a push-to-talk function on the Sprint network instead.
The Nextel network being phased out has been an enormous burden to Sprint. The company has been saddled with the cost of running two incompatible networks, contributing to constant quarterly financial losses since 2007. Nextel phones don't work on the Sprint network, and vice versa, though a few phones can use either network.
"The (Nextel) network and the associated customers have become something of a millstone around Sprint's neck in recent years, and finally having a roadmap for solving that problem is a big step forward," Ovum analyst Jan Dawson said.
Shares in Sprint, which is based in Overland Park, Kan., rose 33 cents, or 8.3 percent, to $4.25 in afternoon trading Monday.
Sprint paid $36 billion for Nextel in one of the worst corporate deals ever. Subscribers started fleeing soon after the deal closed because of poor customer support and network performance, leaving Sprint to write down 80 percent of the purchase price just three years later.
Nextel had nearly 18 million subscribers when Sprint bought it. Now, about 11 million subscribers use the network, and more than a third are relatively low-paying no-contract Boost Mobile customers. The Sprint network, meanwhile, has 37.8 million subscribers and is gaining new ones this year after some losses last year.
Sprint is promising a "second-generation" push-to-talk feature to take the place of its current Nextel offering. Radio spectrum to be freed up by the Nextel phase-out will help make that possible.
However, both Sprint and Nextel customers will need new phones to use the feature. By putting off the phase-out until 2013, Sprint is allowing two-year Nextel contracts signed this year to expire before moving the subscribers over to Sprint's network, Dawson pointed out.
Sprint tried offering a feature called Nextel Direct Connect on some Sprint phones in 2008, but the initiative faltered, because the Sprint network wasn't quite capable of offering the split-second call connection speeds users had come to expect from Nextel.
The Nextel phase-out is part of a network modernization program announced Monday that will cost $4 billion to $5 billion. It is aimed at saving Sprint $10 billion to $11 billion over seven year. Sprint is hiring Alcatel-Lucent SA, LM Ericsson AB and Samsung Electronics Co. as the main vendors for the program.
Apart from cutting costs, Sprint said the program will offer users better coverage to customers, particularly indoors, because it will start using the freed-up Nextel spectrum for Sprint phones. The program also sets Sprint up to introduce faster wireless broadband using fourth-generation, or 4G, wireless technology.
Sprint subsidiary Clearwire Corp. is already building a 4G network, but it's using a technology that the rest of the industry is eschewing. The modernization program gives Sprint the option to deploy a flavor of 4G known as LTE, or Long-Term Evolution, which is set to be the industry standard. Verizon Wireless opened up its LTE network to customers on Sunday.
Nextel's network equipment and phones are supplied nearly exclusively by Motorola Inc., which invented the underlying iDEN technology.