FOCUS: Next Sprint CEO Faces Daunting Task
Published on: 9th Oct 2007
Note -- this news article is more than a year old.
WASHINGTON (Dow Jones) For the next boss of Sprint Nextel, customer service will be top priority.
Former Chief Executive Gary Forsee is out of a job because he couldn't keep customers happy. With Sprint's stock depressed and sales softening, Forsee resigned Monday under pressure from investors and the board of directors.
The problems can be traced to Sprint's $35 billion purchase of Nextel in 2005, championed by Forsee. Efforts to combine Sprint and Nextel ran into frequent obstacles, leading to increased service disruptions and the defection of 1 million premium customers over the past year.
Yet even as the problems grew worse, Forsee devoted substantial time and money on a risky multibillion-dollar bet to build the fastest wireless network in the USA.
While the gamble could pay off in the future, analysts say the cash would have been better spent on the here and now. Sprint already operates two separate networks and the creation of a third only served to distract the carrier from its most pressing task.
"No. 1 is customer care," said Phil Marshall of The Yankee Group, a market-research firm. "You've got to improve the performance of the core business."
Tough to turn around
Improving Sprint's performance, at least against its chief rivals, won't be an easy task in the ultra-competitive wireless industry. AT&T and Verizon Wireless, the two largest U.S. mobile carriers, appear to be firing on all cylinders and other vendors such as T-Mobile USA are snapping at Sprint's heels.
Wall Street analysts believe a Sprint revival would take at least one year, and more likely two.
"We would recommend that investors not be too quick to jump on the bandwagon," Todd Rethemeier of SurTerre Research told clients. "We don't yet know who the new CEO will be [after all, this is the same board that hired Gary Forsee in 2003 and paid him $30 million, including stock and options], and a turnaround is likely still far away."
The first order of business is to minimize service disruptions for customers when they make calls on the Sprint or Nextel networks. Sprint consistently ranks at the bottom of customer-satisfaction surveys and its 2%-plus churn rate is the highest in the industry. Churn measures the percentage of customers who cancel service.
"They've got to focus," said wireless consultant Jane Zweig of The Shosteck Group, an early critic of the Sprint-Nextel merger. "They are not doing anything well."
Worlds of difference
The problems run deep. Sprint and Nextel use different technologies to run their networks, target different customers and operate with different corporate cultures.
One of the biggest drags on Sprint is the continued cost of running two networks. Sprint uses a wireless standard known as CDMA while Nextel relies on a unique technology known as iDEN.
Attempts to shift iDEN customers to the CDMA network have been too slow and far from seamless. In addition, capacity on the iDEN network has been strained by fast growth in Nextel's prepaid Boost service.
The result: more disruptions and unhappy customers. What's worse, those customers also happen to be the most lucrative in the industry.
Nextel caters to mobile workers who prize its push-to-talk service, a feature that works like a walkie-talkie. Sprint, which mostly serves consumers, bought Nextel specifically to obtain its higher-paying business clientele.
Within the company, Sprint and Nextel executives frequently clashed over how to fix the problems, according to an industry consultant who advised both carriers. Frustrated by bureaucratic delays, many talented Nextel executives raced for the exits.
The loss was especially felt in marketing. Nextel, historically an industry maverick, always excelled in selling its product. The same cannot be said of Sprint, whose muddled ad campaigns have been the subject of frequent jokes in industry circles. Consumers feel little identification with the brand, marketing surveys have shown.
Slow phase-out of the old Nextel network, poor customer service and lack of brand awareness were not the only issues. Analysts say the new CEO has to figure out whether to continue to build a third mobile network and decide if it still makes sense to keep Sprint's long-distance assets.
Sprint plans to spend up to $5 billion to create a speedy mobile network based on an emerging technology known as WiMax as part of a strategy to gain the upper hand on AT&T and Verizon.
WiMax could offer faster Internet connections at lower costs than existing options and is especially suitable for putting television on mobile phones, a service seen as a big growth driver in the future. The question is whether the technology is ready for prime time.
"A new CEO is really going to scrutinize that," Marshall said.
In a report, UBS analyst John Hodulik said Sprint has sunk too much money into the WiMax project to abandon it. Instead, he suggested the company spin out that part of its business into a new company.
Sprint also owns a large long-distance network that carries much of its wireless traffic and also handles phone calls originating on cable networks. Most large cable operators now offer phone service and have wholesale deals with Sprint.
"Whoever the new CEO is, he's going to have a big uphill challenge," Zweig said.
(END) Dow Jones Newswires$page_length='long'; ?>