Summary: What signal does it send
to readers when the CEO refuses to respond to questions in the Wall Street
Journal?
http://online.wsj.com/article_print/SB117512850912652487.html
Sprint's CEO Searches
For a Stronger Signal
By
AMOL SHARMA
March 29, 2007; Page B1
In early January, just a few days after Sprint Nextel Corp. warned that it would
report disappointing fourth-quarter results, investors confronted Chief
Executive Gary Forsee at a Las Vegas telecom conference.
Top shareholders vented over what
they saw as mismanagement of the cellphone company, and in one heated session,
Mr. Forsee was asked why he deserved to keep his job, according to people
familiar with the matter.
As Sprint struggles with sluggish subscriber growth and a sagging stock price,
Mr. Forsee has come under increased scrutiny. The company is losing subscribers
in its most profitable customer segment -- people who sign annual contracts and
pay monthly bills -- even as competitors Verizon Wireless and AT&T Inc. are
posting relatively strong results in that area. Integrating Nextel
Communications Inc., the carrier Sprint acquired in 2005, has proved much more
difficult than expected. Since the merger, Sprint shares are down about 30%.
For now, Mr. Forsee has the support of Sprint's board, which he chairs. To
address concerns that the company is bloated, he recently laid off 8% of
Sprint's work force. To appease frustrated investors, he has promised that a
turnaround will start by the end of the second quarter. His plan: upgrade
Nextel's network to reduce dropped calls and other problems customers have been
experiencing, recast Sprint's brand with nifty new ads and attract the kind of
subscribers who are likely to remain loyal. To help implement the strategy, Mr.
Forsee is looking to fill the open position of chief operating officer, though
so far that search hasn't been easy.
Mr. Forsee declined to comment for this article. Sprint spokeswoman Leigh Horner
said, "The right plans are in place and there's accountability across the
organization to deliver better performance and ensure that progress is being
made."
Even if Mr. Forsee delivers improved subscriber numbers this summer, a bigger
task lies ahead: finding an identity for Sprint in the increasingly competitive
U.S. cellphone industry. More than three-quarters of U.S. consumers already own
a cellphone, and it's getting harder for carriers to sign up new customers,
especially high-spending ones.
All the carriers are battling to distinguish themselves from one another.
Verizon claims network leadership, AT&T's Cingular Wireless is bringing fancy
new services and handsets to market like Apple Inc.'s iPhone, and Deutsche
Telekom AG's T-Mobile USA competes mainly on price and courts younger consumers.
Sprint, which is now the third-largest carrier with 53.1 million customers, is
betting on a future high-speed wireless Internet network known as WiMax to set
itself apart, but that is still a few years away.
Sprint's problems started last summer, when the company reported weak financial
results that stunned investors and hurt its share price. Subscribers on the
Nextel network were canceling service because of poor call quality. In late
August, Mr. Forsee sought to quell investor unease by firing Chief Operating
Officer Len Lauer, a Sprint veteran who was respected in the industry and whose
responsibilities included overseeing the Nextel integration.
The News: Sprint Nextel CEO Gary Forsee is under pressure to turn around
subscriber declines at the wireless carrier by the second quarter.
The Background: To get Sprint back on track, Forsee is investing in upgrades to
the Nextel network and is rolling out a new WiMax network.
What's Next: Forsee is expected to announce a new COO soon to help implement the
fixes.Mr. Forsee pledged to get the company back on the right track by investing
in upgrading the Nextel network and tightening credit policies so that more "subprime"
customers weren't added. In December, the board signaled it would give his plan
a chance, installing him as chairman to replace the outgoing Tim Donahue,
Nextel's former chief executive. But in early January, Sprint warned investors
that its fourth-quarter results wouldn't look good. For the first time, Sprint
would actually lose subscribers who pay on a monthly basis -- about 306,000 of
them. Revenue, it said, would grow only slightly from the previous year, and
margins would be under pressure too.
Investors had a chance to voice their concerns a few days later at the Citigroup
telecom investor conference in Las Vegas. Some legacy Sprint investors expressed
frustration that Nextel and its creaky network were at the root of many of the
problems, telling Mr. Forsee that he had been duped into the merger, people
familiar with the sessions say. Mr. Forsee responded that his initiatives would
take some time to show positive results, these people say.
In addition to his roles as chairman and chief executive, Mr. Forsee has been
handling Mr. Lauer's former responsibilities since last August. In recent
months, he has offered the operating chief's job to several industry veterans,
including a top executive at Alltel Corp. and a former executive at BellSouth
Corp., but they weren't interested, people familiar with the situation say. In
February, Sprint was in fairly advanced discussions with Bill Morrow, a former
executive at British carrier Vodafone Group PLC, people close to the matter say.
Those talks fell through as well. Mr. Morrow, who is president and chief
operating officer of Pacific Gas & Electric Co., declined to comment.
Sprint has now narrowed its search to one external frontrunner and resolved
sticky issues involving that executive's noncompete agreement and likely
relocation, according to one person close to the situation. The hunt "is
progressing toward a conclusion," this person said. However, Mr. Forsee and the
candidate have only met briefly so far and haven't yet worked out how they will
share power, the person said. Mr. Forsee has said previously that he wanted to
fill the job by the end of the first quarter.
Mr. Forsee and his lieutenants have said they still expect the fixes they have
set in motion to spark a turnaround by the second half.
The company says the Nextel network is already tuned up and is now in its best
shape ever, though additional upgrades are still on the way. And a new phone
that combines Sprint's more reliable voice network with Nextel's popular
walkie-talkie capability is selling well, it says. Sprint expects to sell two to
three million of them this year. The carrier's WiMax network, which promises to
more than double its wireless-broadband speeds, is scheduled to hit several
major markets beginning in late 2007.
Some investors seem to be making an early bet that a turnaround is already
afoot. Big Sprint shareholders like Goldman Sachs Asset Management LP and
Southeastern Asset Management Inc. added significantly to their Sprint holdings
in the fourth quarter, according to FactSet Research Systems Inc.
Sprint sought to address one of the key criticisms of the merger -- that the
deal didn't produce enough savings or synergies -- by making 5,000 job cuts. But
some investors and people inside the company worry that Sprint may be scaling
back too much in areas like mobile data and entertainment services and
marketing, which could be crucial as voice revenue declines.
The company says the cuts were painful but necessary. "The reductions were a
result of redundancies that were still occurring," says Ms. Horner. She also
says that Sprint is making progress toward the $14.5 billion in promised merger
synergies by consolidating systems and functions that Sprint and Nextel
previously managed separately, including billing, customer activation and
employee payroll.
