Add that to the ongoing mess with the Nextel brand and Hesse had one large job to face in the corner office. Although many of those issues still exist today in some form, Hesse will be the first to say that Sprint's in it for the long, successful haul. Still, the company is expected from market analysts to post a quarterly loss of $0.02 per share when it reports Q4 numbers later today. Sprint's Hesse seems to indicate that while Sprint is certainly down, it's nowhere near out.
Investors are betting that the struggling Palm joining the struggling Sprint for this product launch will help both companies recover from their respective slumps. Elevation Partners has dumped hundreds of millions of dollars into Palm's lap recently as the "do or die" smartphone maker attempts to resuscitate itself. This is not some flighty money -- this comes with some serious backing by some impressive investors. It was a risky bet launching the arguably most important product in the last five years on Sprint's network with the shape the carrier is in, losing customers and all. Someone out there believes in this partnership. Do you?
About a week ago, Hesse indicated that "from a profitability point of view, job one has to be about doing something about the top line and subscriber numbers ... we can take costs out and we will continue to do that, just like we did last year ... we will do more of that in 2009." In other words, look for more Sprint Nextel layoffs to be announced probably in the first quarter or in the second. The company let 4,000 workers go in 2008.
Sprint has a lot going for it. It's going to be the sole carrier for the new Palm, Inc. (NASDAQ: PALM) Pre, which is being touted as the first serious competitor to Apple, Inc.'s (NASDAQ: AAPL) iPhone. The company's marketing is what I would consider first-rate and edgy -- and full of energy. It's just not gaining customers, and a recent competitive merger won't make things much easier. It has apparently improved its customer service though, which is a great sign. Now, if it could just sign up those customers by the hundreds of thousands.
Sprint Chief Service Officer Bob Johnson said the cuts were caused by declining customer calls and fewer billing and service questions. This makes sense: Sprint Nextel has lost millions of customers in the last 18 months. It seems pretty natural to not need all those call center representatives if the call volume is dropping.
But that's not all. Not enough Spring employees have signed up for recently-announced buyout packages, which is forcing Sprint Nextel's hand at more layoffs beyond the 4,000 employees pink slips it gave at the start of this year. Sprint Nextel has improved its customer service -- which was the bane of its existence -- but those improvements came as the U.S. economy took a nosedive and competitor AT&T, Inc. (NYSE: T) sold the heck out of the iPhone 3G at Sprint's expense.
The only thing Sprint can do is to become a leader in something, and customer service would be a great area to really make a difference in. Wireless has been and still is a commodity service, even with calling plans, coverage and data speeds being slightly different between all national carriers. The one thing that could be a big differentiator is customer service. Trying to get corporations to hear that call seems like a futile exercise in most cases, which is unfortunate.
Sprint Nextel Corp. (NYSE: S) seems to be clinging to life as it leeches wireless customers to the competition and desperately tries to get employees to take buyout clauses. Since the company can't find a soul to buy its Nextel national U.S. wireless network, it must nevertheless stop owning and operating that network where affiliate iPCS has its wireless territory.
Perhaps Sprint can just turn off the Nextel wireless network in those areas and have a wireless parts garage sale? It won't be able to get rid of that network infrastructure to make at least a little money. Who would want it? Answer: nobody. A court found this week that Sprint is already in violation of its agreement with iPCS and must shut down its Nextel network in iPCS's territories, so there is nothing Sprint Nextel can do, except get the blowtorches and dumptrucks ready.
The problem for Sprint, however, is not equipment mothballing. It has 500,000 Nextel subscribers in iPCS territory. What does it do with them? If the company has to shave half a million subscribers, that would be disastrous to a wireless company already losing hundreds of thousands of customers per year. Look for Sprint to settle with iPCS before the end of 2008 by whatever means possible. It can't afford to lose any more customers.
Top managers at the telecom company were awarded pay valued at $74 million in 2007, even as the company saw massive customer defections to the competition and was preparing to toss out former CEO Gary Forsee in the process. Sounds like some recent AIG shenanigans, doesn't it? No wonder Main Street no longer trusts Wall Street. Although corporate compensation abuses are almost the norm recently, it's amazing shareholders don't stand up and scream when companies not doing well are lavishly rewarding management.
Of course, Sprint spokesperson James Fisher defended his employer by stating "It's very important to consider that 2007 was a highly unusual year because of compensation that was paid to an exiting CEO, as well as sign-on compensation paid to a new CEO ... we had significant other severance charges for executive changes during the year." Severance charges -- for a management team that ran the company into the ground. I guess all those contracts signed by incompetent management were too hard to bypass since shareholders can't blow holes in those golden parachutes.
"Despite a host of near-term issues, Sprint (NYSE: S) has many of the attributes we look for in a turnaround stock: a solid core business, well-known brands, new management, manageable cash flow and even an activist shareholder to stir things up," notes George Putnam, III.
In his industry-leading The Turnaround Letter, the advisor looks expert at the firm, which he notes traces it roots back to the Brown Telephone Company in Kansas in 1899.
"When the long-distance market was opened to competition in the early 1980's, Sprint moved in aggressively. In early 2005, Sprint acquired Nextel, which had become a major wireless competitor with its innovative 'push to talk' technology that combines elements of the walkie talkie and the cell phone.
"The $35 billion transaction was supposed to vault Sprint into the leadership of the wireless market. Unfortunately, the combined company stumbled. Difficulty in integrating the two companies led to poor customer service which drove some consumers away.
"Investors, who had initially applauded the Nextel acquisition, pushing the stock above $27 in mid-2005, became concerned, and the stock has been in a steady decline for the past two-and-a-half years. And the company's poor earnings report on February 28 further discouraged Wall Street.
If that was the only ugly number in this fourth-quarter report, then perhaps investors wouldn't have reacted the way they did. Sprint's stock is down some 8% today, following the report, after the company had already lost over 57% of its value in the past 52 weeks; 37% in 2008 alone.
The news is unpleasant. Sprint reported a fourth-quarter net loss of $10.36 a share. While excluding the writedown Sprint earned 21 cents per share, beating the 18 cents per share expected by analysts surveyed by Thomson Financial, its sales fell 5.7% to $9.85 billion, missing analysts' estimates. The third-biggest U.S. wireless carrier also had to borrow $2.5 billion under a credit line to get access to cash, although it claimed it made the move due to current credit market conditions.
And that's not all. Sprint is losing customers, specifically 683,000 valuable customers (contract, or "post-paid") during the quarter. While it saw an increase in customers through its Boost prepaid brand, recently appointed CEO Dan Hesse said the company would lose 1.2 million customers during the first quarter and would see additional losses in the second quarter. Also, subscribers on long-term contracts spent $58 a month on their bills, down from $60 a month last year. Somehow, the churn rate remained unchanged at 2.3% (most likely offset by Boost).
Sprint has announced it would stop paying dividends for the foreseeable future.
One of the last straws Hesse needed to address concerned the company's 2006 commitment to rolling out a nationwide WiMAX next-generation wireless data network in the U.S.
At the time, Sprint was seen as a pioneer in bringing anywhere, anytime high-speed data to most of the U.S. with its $5 billion commitment. As 2007 brought customer defections and hundreds of thousands of customer losses and missed profit targets, those plans were scaled back -- some called for them to be scrapped entirely -- so Sprint could focus on its core business: wireless voice service.
Hesse is apparently not going to let the naysayers get away with having Sprint just toss out its grand WiMAX ambitions, and Sprint may now be in talks with Clearwire Corporation (NASDAQ: CLWR) to form a joint venture in a new WiMAX venture that would bring in outside money to help with the rather large capital expenditure that Sprint investors and pundits have been worried about in the wake of losing customers -- big time -- to its competitors. If Sprint can form a joint venture and bring in partners such as Google, Inc. (NASDAQ: GOOG) and retailer Best Buy, Inc. (NYSE: BBY), then its WiMAX plans may indeed have some life left.
Then, last week came the dirty work -- canning executives that have been present during the fall of Sprint Nextel during 2007. CFO Paul Saleh -- the former interim CEO -- was booted out, as are Chief Marketing Officer Tim Kelly and Sales Chief Mark Angelino. Sprint's marketing has been the target of pundits for quite some time, even with the recently "Sprint Ahead" corporate message that seems to go over the heads of most consumers based from what I have seen. It's a great message -- but entirely too complicated for the average wireless customer to understand.
Kelly was a longtime Sprint employee, while Saleh and Angelino were Nextel veterans. Hesse is doing what Michael Dell did a year ago when he took over control of the company he founded -- bring in a ton of new blood. It's too early to see what Hesse will do to revive Sprint with a bunch of new top managers, but whatever moves he makes will surely place Sprint in better competitive position than where it rests now, at the bottom of the heap compared to wireless carrier competition.
Sprint has lost hundreds of thousands of customers in many recent quarters due to the company not giving enough attention to its Nextel radio network. The thinking back in 2005 was that combining Sprint and Nextel into one company would give the single entity a huge customer count and put it on par with other wireless giants like AT&T (NYSE: T) and Verizon Communications (NYSE: VZ). However, customer counts are meaningless if you jolt so many of them so badly that they head for the exit doors. That's precisely what has happened.
Here we are in January 2008, and Sprint has two headquarters -- one in Sprint's backyard of Kansas City, Missouri, and the other in Nextel's backyard of Reston, Virginia. Why on earth Sprint operates out of two geographical headquarters is a mystery, but it's symbolic of how the two companies really never merged outside of a single customer billing system (well, that's just my opinion). Sprint owns some massive assets in terms of wireless licenses around the U.S. and has a very capable and cutting-edge network. It should be doing anything but losing customers. Hopefully, Hesse can make that a reality soon. His success in Sprint spin-off Embarq is proof that he's the right person to attack Sprint's problems.
DISCLOSURE: The author holds no long or short positions in Sprint Nextel Corp. at this time.
Nokia has never really jumped on the CDMA bandwagon, which is the technical standard Sprint Nextel predominantly uses for its U.S. wireless network. Nokia, though, is a huge supplier of handsets to AT&T (NYSE: T) and T-Mobile USA -- two of Sprint's largest wireless competitors.
The challenge Hesse has in front of him is no small potato. Sprint Nextel is in dire need of leadership that will bring results, consistent profits and some form of marketing that will steal customers back from the competition.
That competition, by the way, has punished Sprint in the last year by taking hundreds of thousands of customers away. Hesse's challenge will be whether he could manage the existing Sprint-Nextel post-merger mess in progress and get customer additions back on track for the wireless carrier.