Sprint’s Long Road to Recovery

Implications: Sprint has never hit full stride since its Nextel acquisition in 2005, and its new CEO is making several changes in an attempt to put the company back on track.  The first few steps are on target but the company has a risky bet in WiMax and little margin for error with its operations.

Analysis: Sprint, despite its status as the number three wireless carrier in the US with over 53 million subscribers, is struggling.  New CEO Dan Hesse (formerly of AT&T Wireless) is attempting to stop the bleeding by closing its Virginia facilities (from the Nextel acquisition), firing an additional 4,000 employees and shutting 125 retail stores.  On the product side Sprint is aggressively pushing mobile data initiatives and its $99.99 unlimited plans with Hesse himself appearing in Sprint commercials.  Hesse is also highlighting customer retention with Sprint’s management.

Any incentive plan that focuses on churn, operating income, cash flow and customer care seems logical.  One missing element is new customer acquisition (indirectly addressed in churn), which should be included in Sprint’s long-term plan even if the US market is reaching saturation.  WiMax (Xohm) is another major issue that Sprint must address.  The multi-billion dollar commitment to this wireless broadband technology, as well as the on-again-off-again tie-up with Clearwire and the rumored partnerships with the likes of Motorola and Intel must be defined and executed properly if WiMax has any chance to succeed and positively influence Sprint’s earnings in the future.  Some argue that WiMax is a mistake and should be abandoned or scaled back.

Mr. Hesse has taken several positive measures toward recovery since his appointment to CEO in December 2007.  He must deliver results in the coming quarters or AT&T Wireless, Verizon Wireless, T-Mobile and Alltel Wireless will continue to take advantage of Sprint’s missteps.