Sprint: Still a World of Pain

The mobile-phone giant's planned turnaround may involve selling off assets to comply with lenders' agreements

by Spencer E. Ante

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The customers kept fleeing, revenue fell, and the losses grew, but Sprint Nextel CEO Dan Hesse says the wireless company is starting to make baby steps in its Sisyphean turnaround. "We are acting quickly and decisively to improve our performance," said Hesse during a conference call on May 12 after the company's first-quarter earnings report. But, "as I said [three months ago], the turnaround will take many quarters."

The nation's third-largest cell-phone company said its customer base shrank by more than 1 million during the first three months of 2008. Even worse, those customers who haven't left are spending less each month. All told, the first-quarter results came in shy of analyst forecasts for both revenue and net loss.

Sprint (S) also warned that it might have to sell off some "noncore assets" or take other measures to remain in compliance with financial covenants with lenders. But that won't mean, Hesse asserted, getting rid of the Nextel business, as suggested in recent news reports.

Stressing Service

The plan, says Hesse, is to focus on improving Sprint's widely criticized customer service. And on that point, there were two positive notes in the first quarter: Hesse said the company was resolving problems on the first call to customer service at the highest rate since the Nextel merger in 2005. He also said the integration of the Sprint and Nextel billing systems, a source of chronic pain for employees and customers, is now "materially complete" and "getting positive feedback from the front lines."

After the quarterly update, Hesse's second since he took the helm in December, Sprint's battered share price sagged 1.5%, to 9.24, despite a strong day for Wall Street. "This is going to take a long time," says James Moorman, an analyst at Standard & Poor's. "It's a big ship to turn around. But it is going according to plan."

Sprint's declining fortunes underline the importance of success in a high-speed wireless joint venture with Clearwire (CLWR) announced on May 7. The venture will build a next-generation network based on so-called WiMax technology using $3.2 billion in backing from a consortium that includes Intel (INTC), Google (GOOG), Comcast (CMCSA), and other cable companies. Sprint, which contributed billions of dollars worth of wireless airwaves to the venture, will own the largest stake, with 51%. The speedier mobile Internet access delivered by the new network could give Sprint a badly needed jump on AT&T (T) and Verizon Wireless, the two rivals that have benefited most from Sprint's pain.