By Michal Lev-Ram and Scott Moritz
Thursday morning Sprint chief executive Dan Hesse will face investors for the first time as the company announces its fourth-quarter earnings. The wireless veteran, brought in to replace outgoing CEO Gary Forsee late last year, has had his hands full trying to turn things around at the beleaguered company.
So far, he’s chosen to make small cost-cutting changes — like replacing key management, initiating layoffs and consolidating the company’s corporate headquarters — as he spends his first few months at Sprint’s (S) helm scrutinizing all aspects of its operations.
Analysts say it’s unlikely Hesse will make any big announcements during tomorrow’s scheduled conference call as his “strategic review” is still ongoing.
“We are not expecting Dan Hesse’s plans to become fully baked for weeks, if not months,” Merrill Lynch analysts said in a recent report which also cited a “lack of quick fixes” for the company’s problems.
Last quarter, Sprint announced its wireless revenues were down 4% year-over-year. Even more telling was its announcement that it had lost 60,000 customers — churn, or the rate at which customers defect to other carriers, is an important metric for the wireless industry, where mobile operators are in fierce competition to not only acquire but retain new customers.
But Sprint has other problems too: It is struggling to integrate its two networks and technologies following a 2005 merger with Nextel, and is facing a lot of criticism — including from shareholders — for its decision to pour $5 billion into a next-generation wireless network called Wimax.
“Long term the Wi-Max investment could be interesting,” says Bear Stearns analyst Phil Cusick. “But for a company with this many other problems it’s been a distraction, and that’s something the company can’t afford right now.”
But Cusick says Sprint’s most difficult challenge is figuring out what its identity is — it is trying to be too many things to too many people and, unlike rivals AT&T (T), Verizon Wireless (VZ) and T-Mobile, lacks a core customer base. On top of that, its customer service is notoriously known as one of the worst in the industry.
When he took office last December, Hesse promised shareholders he would “review every aspect of our strategy as we intend to lead Sprint to the forefront of the wireless industry.” But other than entering some kind of WiMax partnership (possibly with Craig McCaw’s Clearwire), there are few drastic changes Hesse can make to turn the company around at this point.
Still, shareholders seem to have faith in Hesse, at least for the moment.
“I am encouraged by the company’s new CEO, Dan Hesse,” activist investor Ralph Whitworth, who recently earned a seat on the company’s board, said in a statement last month. “Dan has committed to review all aspects of the company’s business and shown a willingness to make tough decisions.”
But Whitworth, a longtime opponent of the company’s WiMax efforts, also said that “a turnaround at Sprint Nextel won’t be easy” even though he believes “the ingredients are in place to get the job done for the company’s shareholders.”