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Embarq Thrives as Sprint Nextel Flounders


12/09/2007

When two of America’s leading cell phone carriers, Sprint and Nextel, merged two years ago, analysts and investors had such high hopes for the combined company that many failed to pay attention to the subsequent spin-off of Sprint’s landline telephone division, Embarq.

Sprint chose to dump its tried and proven local phone business to focus all of its attention on wireless. Sixteen months later, however, the company is failing to keep up with larger rivals, Verizon Wireless and AT&T (formerly Cingular), while Embarq has emerged as a leading performer among U.S. telecommunications companies.

“Embarq has been one of the best performing stocks in the group,” commented Raymond James telecom analyst, Frank Louthan, noting that Embarq’s share price has surged 36% since it was spun off in May 2006.

The much-hyped Sprint Nextel, however, has failed to live up to expectations, losing 19% of its stock value since the merger and 15% since the spin-off of Embarq.

“Everybody thought Sprint-Nextel was going to be the superstar, but it’s been plagued with so many issues,” says senior vice president, Roger Entner, of IAG Research. “Embarq has largely chugged along.”

Ironically enough, regulators forced Sprint to shed its landline assets in order to gain approval for the much-coveted Nextel merger.

Embarq CEO, Dan Hesse, believes it is innovation that has caused his company to succeed while Sprint Nextel has fallen behind. Knowing that pure-play landline is a declining business, Embarq has made a special effort to combine wireline and wireless services to maximize the unique strengths of each, and make landline telephone services more relevant to modern-day customers.

“We add a lot of features that focus on the integration of wireless and wireline,” Hesse said recently, explaining that Embarq sells a re-branded version of Sprint’s wireless service in conjunction with its own landline offerings. “We would not be in the wireless business just to sell wireless to customers. We are in the business because we think there is an untapped need to have wireless and wireline work together.”



 

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