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Squawk Box Feb 29 – Marriages and Alliances

Two days ago Apple COO Tim Cook, speaking at the Goldman Sachs Investment Symposium, said that their relationships with carriers are marriages of convenience.  Cook noted that they wouldn't be bound to the single carrier model they've used to date, and said "we're not married to any business model.  What we're married to is shipping the best phones in the world."

Boom!  A warning shot to AT&T?  A negotiating stance to get a better rate from carriers they might be working with today?

And how about a really bad marriage?  Even though they proposed in a leap year, and got married the year after, it's been nothing but heartache for Sprint and Nextel.  They've now written down nearly $30 billion, which is pretty much the entire stock value of Nextel before the deal was announced.  Yesterday's they reported a net loss of $29.45 billion, which is more than the company's market capitalization.  They suspended their dividend, and wrote down an additional $29.7 billion related to the acquisition of Nextel.  They also drew down $2.5 billion on their credit line, stopped buying back stock, and may even need to raise capital.In the midst of that they announced the most aggressive unlimited plan yet — $99.99 for unlimited everything — voice, text, data, music, navigation, long distance included… Is it enough?  Can Sprint be the Phoenix that rises from the ashes, or is it time to scatter their ashes on the lawns of Overland Park and move on?

And what about a proposal that we haven't seen yet, which is the rumoured Nortel / Motorola merger.  Yesterday Nortel announced a $957 million loss for last year, cut another 2,100 jobs and moved another 1,000 offshore.  According to debt analysis firm Gimme Credit (I'm not making that name up, by the way), Nortel’s revenue and profit come almost entirely from sales of wireless software and equipment based on the CDMA standard. As most of us know, this technology is used in North America but isn’t used much in other parts of the world. GSM is the global standard, and Nortel is a relatively small supplier of this system.  And as the world migrates to UMTS, Nortel has abandoned its efforts in UMTS. So what does this have to do with Motorola?  Motorola isn't just a handset maker.  In fact, they have a line of GSM and UMTS equipment marketed under the Reach GMS brand. Could this be answer for both of them?  Or, as one of my VC friends noted once, is it a case of tying two rocks together and hoping they can float?

And finally, what about the much rumoured acquisition of Skype by Hutchison Wampoa?

Our distinguished panel discussed all these, and more.  Enjoy!

{ 2 comments… add one }

  • smithdm3 February 29, 2008, 3:08 pm

    Alec, Just to correct a couple of things you guys talked about in your podcast:
    1. Nortel is still certainly in the GSM business, they only exited the UMTS business by selling it to Alcatel-Lucent. Who, in turn are using the great technology that Nortel developed and are replacing a lot of their own basestations with it.
    2. Nortel is also investing quite a bit in LTE (and WiMax), and will attempt to bring their 2G customers and their 3G CDMA customers to that technology.

  • Alec March 1, 2008, 6:12 pm

    Thanks for that. Appreciate the clarification.

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