Troubled Sprint seeks recovery

Jan Dawson/Ovum
21 May 2008

Sprint recently held an event for industry analysts at its headquarters in Kansas City. This was the first such event for a year and a half, and an opportunity for the new leadership team under CEO Dan Hesse to explain the strategy they hope will turn the company around, around four months after he took the helm.

Sprint is a company in trouble. Its gross adds have been weak and its churn high, particularly on its Nextel iDEN network, and as a result the company has had negative net adds and revenue growth for some time, while its major competitors have been growing both rapidly. Hesse's mission is to turn the company around, and he faces a monumental task.

Most of Sprint's current problems stem from the distractions caused by the acquisition of Nextel in 2005. The management at the time focused too much on cutting costs and adding subscribers quickly in an effort to drive merger synergies, and as a result created high churn, a substantial sub-prime credit customer base, and confusion about Sprint's place in the market.

Because the problems are so fundamental, many of the changes the new team is implementing are very basic, with three key strategic planks focusing on customer experience, branding and profitability. Sprint is aggressively seeking to address both the reasons for the higher-than-average calls to customer care and the resolution of customers' problems on the first call.

It is focusing its brand messaging and advertising around the tagline "the Now Network" and attempting to differentiate on the quality, speed and usability of its data services. And above all it is seeking to improve margins rather than simply to grow at any price.

The key for Sprint going forward will be execution and consistency. Over the last few years, as the various problems Sprint is now dealing with began to emerge, the previous management announced initiative after initiative to turn the company around.

But these initiatives would be changed every few months, along with the company's branding and positioning in the market, as Sprint's management became increasingly desperate. Executing well and sticking with these three core initiatives for at least the next year will be key to finally making a difference in Sprint's performance.

Sprint is executing well so far. Dan Hesse now has a team in place, and has reorganised the company with business units for iDEN, CDMA, wireline and wholesale, each with their own profit and loss responsibility.

Early execution on the customer experience initiative has also been aggressive and has already begun to achieve results. New advertising campaigns around the iDEN network and Sprint's unlimited plans are effective and being well received.

But there are worries too. The new structure revolves around technologies and not customer segments, which feels like a backwards move. Sprint appears to be banking too much on a small number of big things - prominent among them its Wimax initiative, shortly to be spun off, and the forthcoming Samsung Instinct device - to drive change.

Although it has reiterated its commitment to the iDEN network to analysts and other industry insiders, it hasn't yet done enough to overcome the many rumors in the market which contradict that message. And it has substantial scale and scope disadvantages against Verizon and AT&T, its major competitors in the US business market.

As a result, although there are signs that the new management team will make some quick progress, there are still a lot of worrying issues which Sprint will have to grapple with going forward, and its recovery is by no means a foregone conclusion.

Jan Dawson, VP, US Enterprise Practice

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