Sprint's Wake-Up Call

Reversing a miserable service reputation after the Nextel merger will be key to the company's turnaround

Kyle Baker

by Spencer E. Ante

When Daniel R. Hesse was named chief executive of Sprint Nextel in December, he figured that customer service was going to be one of his biggest challenges, given how poorly the wireless service provider had performed on that count in recent years. He quickly found out precisely how big. The lanky 54-year-old walked into his first operations meeting at Sprint headquarters in Overland Park, Kan., and found that customer service wasn't on the agenda at all. He changed course right away. Customer service is now the first item discussed at every one of the weekly meetings. "We weren't talking about the customer when I first joined," says Hesse. "Now this is the No. 1 priority of the company."

With good reason. Since Sprint and Nextel merged three years ago, the deal has turned into something of a fiasco, with the company's stock down 66% since the agreement was struck. Poor service is a central reason. After the merger, unhappy customers defected in droves, and profits evaporated. On Jan. 31, Sprint Nextel (S) said it would take merger-related charges of as much as $31 billion, wiping out nearly all of the deal's value. In addition, two lawsuits have been filed against the company for allegedly extending customers' service contracts without their consent.

Employees like Paula Pryor saw the merger's impact firsthand. The 38-year-old, who worked in a call center in Temple, Tex., says the numbers-driven management approach implemented after the combination led to poor morale and deteriorating customer service. Even bathroom trips were monitored. "They would micromanage us like children," says Pryor, who was fired last year after taking time off when her father died.

The toll on Sprint's reputation has been dear. The company has ranked last among the country's five major wireless carriers in customer service every year since the merger in 2005, according to annual surveys by J.D. Power & Associates (MHP).

Now, two months into his job, industry veteran Hesse is disclosing for the first time detailed plans for turning around customer service. He's increasing investments in customer care, adding service technicians in retail stores, and reversing many management practices in customer call centers. Hesse is convinced that restoring Sprint's reputation with customers is the key to its future. "You will see progress," he says. "We have the right people in place. We will get it done."

For the combined Sprint Nextel to be criticized for quality issues is a remarkable reversal. During the 1980s and '90s, when Sprint was the nation's third-largest long-distance company, it distinguished itself by advertising a fiber-optic network so high-quality you could "hear a pin drop." Nextel was known for its "push-to-talk" technology and the best rate of customer retention in the industry.

When the two unveiled plans to merge in December, 2004, there was a certain logic to the deal. Separately, they were much smaller than AT&T (T) and Verizon Wireless, but together they would nearly rival the two wireless leaders in size. The theory was that, combined, they would have the bulk to get the latest phones, best prices on equipment, and most complete network for wireless customers. "The combination of Sprint and Nextel builds strength on strength," Gary D. Forsee, CEO of Sprint and later the combined companies, said then.

But as the two formally combined in August, 2005, it became clear this deal would be even more complex than the typical megamerger. At the same time Forsee and Executive Chairman Timothy M. Donahue were piecing the two companies together, they laid out an aggressive strategy for the combined entity to become a leader in wireless broadband services and content. That led to plans to spin off Sprint's local telephone business, form partnerships with the cable industry, and develop a wireless technology known as WiMAX. "There was so much going on after the merger that there was a lack of focus,"