Hesse on the Hot Seat at Sprint

Investors may pout. But the new CEO, and former Embarq chief, may have what it takes to get the wireless provider back on track

by Roger O. Crockett and Olga Kharif

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A little more than two months after Sprint Nextel (S) booted former Chief Executive Officer Gary Forsee amid declining subscriber rolls and flat revenue, the company announced on Dec. 18 that Daniel Hesse would take over immediately as its new chief. For a company so down on its luck as Sprint, having lost market share and customer goodwill in recent months, officials might have thought the news would be a pre-holiday gift for shareholders.

Wishful thinking. Hesse's appointment hit like a thud on Wall Street, with shares slipping about 1% to 13.76. What gives? Investors may have been hoping that the board would simply sell the company instead of hiring someone to tackle the long, arduous task of getting it back on track. And if the board was going to hire a new chief, shareholders may have been wishing for a big-name executive instead of Hesse, formerly CEO of the little-known Sprint spin-off Embarq (EQ). "He has a decent track record, but he is not a rock star," says Shahid Khan, partner at IBB Consulting.

Not that Sprint didn't try. Wall Street insiders say Sprint's board of directors approached at least four other telecom executives before offering the job to Hesse. They included Ralph de la Vega, chief executive of AT&T's (T) wireless business, and Dennis Strigl, chief operating officer of Verizon Communciatons (VZ) and former CEO of Verizon Wireless. Both declined to pursue the position. Neither could Sprint lure top managers or former execs at European standouts Orange Group and Vodafone (VOD), according to executive recruiters.

A spokesperson for Sprint declined to comment specifically on who was considered for the post. "We aren't commenting on the selection process but our Board believes they have the right person to lead this business," said the spokesperson, in an e-mail. "Dan has a proven track record in successful operational execution with deep wireless experience and a familiarity of the company that allows him to hit the ground running."

Many Challenges Ahead

Sprint is hardly a glamorous company nowadays. The beleaguered wireless service provider has seen its stock cut in half in the last 18 months, as its merger with one-time wireless rival Nextel has turned into a marketing and operational disaster. The company is expected to report a loss of an additional 200,000 postpaid customers in the fourth quarter, says Thomas Watts, an analyst with Cowen & Co. Even its future bets, on the emerging broadband technology WiMAX and collaboration with cable companies, are uncertain at best. "It's a huge challenge," says Lisa Pierce, a Forrester analyst who specializes in U.S. telecommunications services. "This is not an opportunity for slackers."

But investors may be selling Hesse a little short. In 2005 he was chief of Sprint's local, wireline phone division, and then became chairman and CEO of that business when Sprint spun it off as Embarq in order to focus on wireless. Under Hesse, Embarq was a leader in innnovation. Embarq was the first to tie together basic cellular service with voice service over WiFi in the home. Now, more than a year later, carriers such as T-Mobile USA (DT) are making similar moves with great fanfare. "It demonstrates that he understood the technology's capabilities early," says Pierce.

And Hesse is much more than a local telephone guy. He spent 23 years at AT&T manning several different areas.