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Will Hesse Get Sprint Up to Speed?



Sprint’s Dan Hesse

It comes as no surprise that Sprint Nextel Corp.s new president and CEO has a big job ahead of him. To that end, Dan Hesse, 54, landed a compensation package that should more than make up for the time he must put in to restore Sprints enterprise and WiMAX strategies, its wireless standing and its workers morale. Analysts, agents and, surely, employees, hope Hesse can pull off the turnaround Sprint needs, although the stock market has failed to respond in kind. At press time, a week after the Hesse news, Sprints stock was only 41 cents away from the companys 52-week low of $12.97.

Sprint on Dec. 18 named Hesse its new president and CEO, replacing Gary Forsee. Forsee resigned in October 2007 amid shareholder pressure and starts work as president of the University of Missouri on Feb. 18. Hesse had been serving as chairman, president and CEO of Sprints landline spin-off, Embarq Corp. Before Embarq was formed in 2006, Hesse was CEO of Sprints local telecommunications division. Prior to that, he spent 23 years at AT&T Inc., including a three-year stint as head of AT&T Wireless Services.

Sprints executive turmoil started in August 2006 when COO Len Lauer left the company. Prior to that, however, Forsee already had come under attack for Sprints plummeting earnings and reputation. When Lauer departed, Forsee took on Lauers responsibilities in addition to his regular duties. Then, when Forsee was pushed out, CFO Paul Saleh juggled CEO duties during the search for Forsees successor. That search ended relatively quickly, though, with Hesse, who will earn a base salary of $1.2 million, the same as Qwest Communications International Inc.s new CEO, Ed Mueller, but less than Forsees base salary of $2.9 million. And unlike Mueller, Hesse received a signing bonus worth $2.65 million. His pay, like most executives, comes with a variety of stock options, reimbursement clauses and health insurance.



Ovum’s Jan Dawson

Theres a lot of complaint these days about executive salaries, but Hesses compensation might be justifiable. Sprint is the nations third-largest wireless company, but it has fallen even further behind rivals AT&T Wireless and Verizon Wireless as its earnings, subscriber levels and customer service marks keep dropping. A lack of emphasis on enterprises, as well as the scrapped WiMAX partnership with Clearwire, also has made Sprint a target for change. Yet, none of this should imply that Sprint is on its last legs. “The good news in this business is that few businesses ever really die they simply morph into something new,” says Jan Dawson, vice president of U.S. enterprise practice for research firm Ovum. “Hesses real challenge is to decide whether there is a future for Sprint as an independent company, or whether its best hope lies in becoming part of something bigger.”

Dawson says Hesse has about 12 months to “demonstrate that Sprint has a future on its own.”

The key problems Hesse must address are the ones that have dogged Sprint for years (especially since the Nextel merger didnt bring about the expected synergies or growth), starting with what enterprises want. Sprint must become the third choice to the “effective duopoly” of AT&T and Verizon Business, says Lisa Pierce, an analyst for Forrester Research. She says large businesses want an option to the behemoths and Sprint ought to be that. Besides, focusing more on enterprises wont just be good for end users itll be a boon for the agent community, too. World Telecom Group (WTG) is one of Sprints largest channel partners and its president and CEO, Vince Bradley, is optimistic about Hesse taking the helm at Sprint. He expects Hesse will use his wireless background to get that division back on track “and help drive more business for Sprint.”

Sprint didnt respond to a request for comment on Hesses plans, if any, for the companys channel program.

Hesse also needs to get Sprint to make good on the WiMAX hype, analysts say, or end the pursuit altogether. Forresters Pierce sees WiMAX as a strong alternative to traditional ILEC T1s and one that could greatly “enhance Sprints top-line revenue.” But if Sprint is to continue with WiMAX, its going to have to start anew. The companys WiMAX efforts stumbled last November when the company said it and Clearwire had pulled the plug on plans to build a combined WiMAX network that would have reached 100 million people in 2008. The two companies said they “could not resolve complexities” in reaching final agreement on the terms of the transaction. However, they will keep partnering on roaming, frequency interference coordination, spectrum exchanges, technology evolution and development and network standards.

Its imperative that Hesse figure out what to do about Sprints WiMAX strategy, Dawson says. He says there are three options: “can the project, attempt to resurrect the failed partnership with Clearwire, or continue to go it alone. We remain unconvinced about the prospects for WiMAX and Sprints business model for it, and so the first two are attractive options.” If Hesse were to discard WiMAX altogether, Sprint could devote all its time to restoring its core business, while allowing itself to come back to the 4G trend later, Dawson says.

On the other hand, working again with Clearwire which Dawson acknowledges might not be doable would reduce Sprints capex. “At the very least, Hesse ought to be questioning the merits of such a capital-intensive, high-risk project at a time of significant turmoil at the company,” says Dawson. WiMAX could pay off in a big way and help restore Sprints fortunes, he adds, but thats a ways off. Hesses priority “should be to ensure that Sprint is a going concern in the meantime.”

And in the meantime, Sprints wireless problems will constitute one of Hesses biggest headaches. Sprint lost 340,000 wireless users and 77 percent in net income in the third quarter of 2007 alone. The rest of the year was just as bleak. With the wireless unit suffering so badly, analysts say Sprint needs to improve its network coverage and reliability, not to mention its customer service, which got a place last year in MSN Moneys Customer Service Hall of Shame.

All of those shortcomings have added up to another problem Hesse must correct, which is worker morale. Dawson says Sprints ailing financials and executive turnover mean a lot of employees have been polishing their resumes. Still, Dawson says, Sprint did the right thing by replacing Forsee somewhat swiftly, and with an industry insider. That should give employees some hope. It also gives Hesse “a long to-do list,” says Dawson.

Links

AT&T Wireless
Clearwire Corp.
Embarq Corp. www.embarq.com
Forrester Research www.forrester.com
Ovum www.ovum.com
Qwest Communications International Inc. www.qwest.com
Securities and Exchange Commission www.sec.gov
Sprint Nextel Corp. www.sprint.com
Verizon Business
World Telecom Group www.wtgcom.com


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