After recently admitting that it was peddling its struggling iDEN business, Sprint Nextel reversed course and announced it would instead hold on to the business in an attempt to revitalize it.

Ever since Sprint purchased Nextel in 2005, Nextel’s iDEN push-to-talk business has taken a nose dive. Customers, including public-safety users, have defected at an alarming rate as Sprint chose to focus more heavily on the consumer CDMA market than the iDEN side of the house, despite the fact that the P2T business historically generated the best revenues in the industry.

Sprint Nextel launched a comeback campaign at the beginning of 2008, investing in the network to improve quality and rolling out high-speed CDMA technology, known as EV-DO Rev. A, to support a CDMA P2T product using VoIP technology. But customers are still churning from iDEN at a rapid rate. At the end of the second quarter, Sprint had 14.6 million iDEN subscribers, down from 17.3 million at the end of the first quarter, despite the fact that Sprint CEO Dan Hesse had declared that the network was performing at the “best levels ever.”

Despite the churn, Sprint still considers its iDEN network an important asset. “The iDEN network is a key differentiator for Sprint, as it allows us to offer products and services no other carrier in the industry can match,” Hesse said in a statement.

Analysts suspect, however, that Sprint had a difficult time peddling the unit given the nation’s credit crunch and the fact that it was looking for a buyer to assume at least $5.4 billion in debt.

Sprint’s rejuvenation will hinge in part on its ability to aggressively woo public-safety users, predicted Ken Hyers, analyst with Technology Business Research.

“We believe that public safety should be a key focus for iDEN going forward. The nature of the iDEN network, which offers the best push-to-talk in the industry in conjunction with cellular service, makes it a natural for public safety and some government customers,” Hyers said.

Sprint said it plans to launch eight Nextel Direct Connect handsets as part of its new device portfolio in 2009, with five expected to launch during the first half of the year.

Much of the capacity problems plaguing the iDEN network appear to have been resolved as Sprint winds down its rebanding efforts with public safety, and the operator has invested in more capacity. The customer defections during the last three years also freed up capacity. As a result, Sprint has introduced a $60 unlimited voice and text plan for the iDEN network.

However, more trouble might be coming. Sprint also will be focusing heavily on its Boost Mobile unit, which offers prepaid iDEN service. That unit got Sprint into trouble by eating up the network’s capacity two years ago.

Said Hyers: “Sprint at some point could again become a victim of its own success as more customers use up existing capacity. I believe that Sprint is best served by using unlimited plans for its CDMA network and focusing on blue- and gray-collar customers, along with public-safety and first-responders for iDEN.”