You're a potential CEO of Sprint Nextel. You're interviewing with the recruiters and whether you get the job or not depends on one question: What would you do with Sprint Nextel?
The question is a tough one. Would you keep former Sprint CEO Gary Forsee's big WiMax plan? Some analysts are already reminding Sprint management that they are just placeholders. And since they are placeholders they should shelve the WiMax rollout until the new person comes in. Do you cut capital spending? Do you divest Nextel? What about the high wireless churn rates? Can you improve customer service? How do you convince people your network is up to snuff? What's the time frame?
All of these questions bounce around as I peruse Sprint's third quarter earnings report. The company reported third quarter net income of $64 million, or 2 cents a share, compared to $279 million, or 9 cents a share a year ago. Adjusted earnings, which exclude charges and other costs, were 23 cents a share. That tally was a penny above estimates. And that's where the good news ended more or less. Revenue in the quarter was down 4 percent from a year ago to $10 billion.
More alarming is that Sprint lost 60,000 total wireless subscribers in the third quarter. Churn was 2.3 percent "on seasonally higher involuntary deactivations and competitive market conditions." Translation: Churn was up because Sprint customers bailed and the company booted some customers it deemed too costly.
Acting Sprint CEO Paul Saleh said in a statement that the company is trying to simplify its business and improve customer service. Capital spending was $1.7 billion, which was lower than Cowen & Co. estimates of $2.3 billion. This is largely due to timing shifts in Sprint's WiMax buildout.
But let's face it. Sprint's future isn't Saleh's call. In fact, he's a lame duck. Sprint's technology guru told Information Week that it's full steam ahead on WiMax. But then again the CTO may be a lame duck too. There's no guarantee that the new CEO will see WiMax as a wireless utopia.
All of this leaves that initial question: What would you do to fix Sprint?
A few thoughts for discussion:
Don't shelve the WiMax plan. Patrick Comack, an analyst at Zachary Investment Research and Management, says in a research note that the company's WiMax rollout should be shelved. He argues that the new CEO should put WiMax on "long-term hold." Sure, WiMax will cost a bundle, but Sprint's partnership with Clearwire mitigates that risk a bit. I'd maintain that the WiMax network should proceed. Here's why: Sprint's network stinks. Customers know it and are leaving to go to Verizon Wireless and AT&T. Given the networks at AT&T and Verizon aren't going to crumble, Sprint needs to at least attempt a leapfrog. WiMax could be that leapfrog move.
Innovate. Sprint better move heaven and earth to partner with Google on its mobile plans. With smaller carriers, the hip factor is huge. Sprint has lost its mojo relative to T-Mobile. Meanwhile, handset makers don't have any huge incentives to create exclusives with Sprint anymore. Palm's Centro is exclusive to Sprint in a partnership of two limping companies.
Divest Nextel. Sprint's acquisition of Nextel seemed like an OK deal at the time. But the company got more complicated with two networks and two customer bases. And probably two IT infrastructures that may only be halfway integrated.
Improve customer service. Good luck with this one, but the new CEO has to give it a shot. Take Sprint back to basics. The problem with this obvious fix is that it will take years to remedy. No amount of marketing will make customers feel good about Sprint in short order.
Find the one thing you do best and stick with it. What's Sprint's calling card? Is it data, voice, cool phones or some other niche. Sprint doesn't seem to know. It better find out. If not the new CEOs job description will be to stop the bleeding and dress the pig up for a sale.