Sprint's Wake-Up Call

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says one former senior-level insider.

In September, 2005, the month after the merger closed, Forsee told Wall Street that the deal was going more smoothly than expected. He raised the projection for expected "synergies," or cost savings, to $14.5 billion, up from the original $12 billion estimate at the time of the merger announcement.

That boosted pressures to find cost savings throughout the company, say former employees and executives. An important component of the effort was importing the quantitative management approach of Sprint to Nextel. While some of the new metrics worked well, others had detrimental effects, former employees and executives say. In particular, call centers began to be measured and viewed primarily as cost centers, rather than opportunities for strategic advantage. Customer service ended up a secondary priority, say former executives. Forsee, now the president of the University of Missouri, declined to comment for this story.

In the fall of 2005, as board members gathered for their first meetings as a combined company, the directors from Nextel noticed another key change, according to the former senior-level insider. Before the merger, Nextel directors talked at every board meeting about "churn," the industry term for the percentage of existing customers who leave each month. The directors felt churn was a good shorthand way to understand the quality of customer service, and they prided themselves on Nextel having the lowest in the industry. But after the merger closed, the combined board paid little attention to churn, concentrating instead on the progress with synergies and strategic initiatives. "From the very beginning there was a philosophical difference on churn," says the former insider.

In the trenches, meanwhile, workers were dealing with fallout from the merger. Pryor remembers the conditions in her Texas call center, originally a Nextel facility, shifting dramatically in the first months after the merger closed in late 2005. Managers began tracking what she was doing on her computer. Overtime pay became much harder to get. Most puzzling for her was the pressure to keep customer calls short. At Nextel, she was judged only on the number of customer problems she solved each month, however long they took, and she would occasionally spend 30 minutes to resolve a thorny issue. But after the merger, speed was the priority, she says. "They would say, Your calls need to be shortened,'" she says.

`LIKE NOAH'S ARK'

Other employees say they felt similar pressure. Gayle R. Romero, who worked in Sprint Nextel call centers for six years, says that at one team meeting after the merger, a manager said, "if you don't think you can handle this, I hear McDonald's is hiring." Says Romero: "Everyone was scared."

Customer service issues began to surface later that year. In January, 2006, Sprint unveiled plans to merge the two billing and customer care systems from the combined companies. But employees say there was little evidence of any progress in the following months. Service reps had to toggle back and forth between systems, and at times couldn't get access to billing or technical information for customers. "It was like Noah's Ark," says one former insider. "We had two of everything."

Churn rose quickly, hitting 2.4% in the third quarter of 2006. That was the highest among the country's major carriers and far above the 1.4% rate Nextel reported before the merger. At the same time, Sprint reported softer-than-expected earnings, punishing its stock.

As Sprint came under financial pressure in 2006, it began to ask call-center workers to engage more in sales. Whereas Nextel service reps had no sales quotas, workers at the combined companies were required to hit targets for renewing contracts or retaining customers who wanted to cancel accounts. One call-center employee says she was supposed to renew 600 to 900 contracts per month, and sometimes the target exceeded 1,000. In the customer retention unit, workers were given cash bonuses of $2,000 to $3,000 per month if they met monthly quotas. "They wanted those big bonuses," says Romero.