Sprint's Subscriber Woes Deepen

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Sprint isn't making life easier for itself by continuing to revamp its management team (see BusinessWeek.com, 8/22/06, "Sprint's Post-Lauer Crossroads"). In its latest round of executive changes, in December, Sprint Executive Chairman Tim Donahue retired and was replaced by Forsee. The company has also gone through executive changes in marketing. A new president and chief operating officer are expected to take the helm in the next few months.

The customer losses and management upheaval add to the pressure on Forsee, who's already under the gun from some investors and board members to get the Nextel integration back on track (see BusinessWeek.com, 10/11/06, "Is Time Running Out for Sprint's Forsee?"). They'd also like to see an end to the frequent management changes to bring much-needed stability and focus to the company's turnaround strategy.

Risks in Rolling Out WiMAX

To right its ship, Sprint plans another 5,000 job cuts this year. It also hopes to complete further network improvements and weed out the Nextel customers who aren't paying. Most analysts believe Forsee's strategy is sound: "Remember how HP (HPQ) was beaten up and now it's riding high?" says Bob Rosenberg, president of consultancy Insight Research Corp. "There's an analogy here. Wall Street is very impatient. But long term, they've got a good strategy." Yet, full integration of Nextel could take another 12 months, says Shailendra Pandey, an analyst with consultancy ABI Research. "The problems won't be over until at least the end of 2007," he says.

Risks surrounding Sprint won't end there, either. Wall Street's hopes hinge on a WiMAX wireless broadband network Sprint will spend up to $800 million this year to build. But what if wireless broadband is slow to take off? It's still unclear just how much users will pay for it. And competitors like Clearwire, whose deep-pocketed investors include Motorola (MOT) and Intel (INTC), are already offering the WiMAX service, moving a step ahead of Sprint (see BusinessWeek.com, 12/20/06, "WiMAX IPOs Are on the Way").

All these uncertainties and problems could hasten another megadeal in the telecom land. With Sprint's rivals strengthened through mergers, "the competitive urgency has been increased, and it makes it more possible that another huge deal might happen," says Michael Shinnick, a co-fund manager at 1st Source Monogram funds who has been buying into Sprint's shares on price weakness since September. If Verizon is unable to gain full control of Verizon Wireless, its joint venture with Vodafone (VOD), Verizon might swallow Sprint, he suggests, to fight off competition from the mighty AT&T. San Antonio-based AT&T is the new sole owner of Cingular, the largest U.S. wireless carrier. It will soon be rebranded as AT&T Wireless.

Leader in New Services

An even more likely scenario is that Sprint will be bought by a large cable operator such as Comcast (CMCSA) or Cox. In late 2005, both joined Sprint and other companies to form a venture to provide a wireless service to their customers (see BusinessWeek.com, 11/3/05, "Sprint Nextel's Watershed Deal").

As a company, Sprint has much to offer: It continues to be a leader in new services such as mobile TV and converged offerings such as Sprint Wireless Integration, a service that rings an incoming call on a business customer's desk and mobile phones simultaneously. Of course, an acquirer still would be forced to deal with the same integration problems surrounding Nextel.

Sprint Nextel spokesman James Fisher wouldn't comment on merger speculations. "We have a very strong operational plan and a lot of assets, and we feel very confident about executing on that plan," Fisher says. Now if only Wall Street could feel as confident.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.