The Hesse era at Sprint was a 7-year struggle with Nextel and bad network decisions

20 Comments

Credit: Sprint

In October 2008, Sprint’s(s s) new CEO Dan Hesse stood on an outdoor stage in Baltimore’s Inner Harbor holding an Ethernet cable. Brandishing a pair of hedge clippers, Hesse’s CTO Barry West sliced through the cable — a pretty obvious metaphor for cutting the internet cord. Just 10 months after taking over Sprint, Hesse was presiding over the launch of Sprint’s new Wimax network and supposedly heralding the age of 4G.

The even-mannered but outgoing CEO looked at ease at the staged event, but Wimax wasn’t a technology that Hesse picked. That decision had been made by his predecessor Gary Forsee, and it turned out to be disastrous choice, bogging Hesse and Sprint down for years as the technology struggled to gain acceptance. But that wasn’t the only bad decision Hesse inherited.

In fact, many of the problems that plagued Sprint in 2007 are the same problems that Sprint faces today: an exodus of customers, a schizophrenic network strategy, and a culture obsessed with the future rather than focusing on the present. And like his predecessor, Hesse is passing those problems along to his successor Marcelo Claure, who will take over Sprint next week.

Networks, networks and more networks

Hesse was probably given one of the hardest jobs in the mobile industry when he moved over from Sprint’s spun-off wireline business Embarq in 2007 to run Sprint proper. Two years earlier Sprint had acquired fellow nationwide mobile carrier Nextel, which triggered a wave of subscriber defections and financial troubles that would plague Sprint all the way up until 2013 when it finally shut down Nextel’s old iDEN network. In an interview with Gigaom in 2012, Hesse admitted that the Nextel merger was mistake.

While Hesse carried the Nextel albatross for his entire tenure, it proved to be the lesser of the problems he inherited. The decision that confounded Hesse throughout his tenure was Wimax.

Wimax was a mobile broadband technology heavily promoted by the Intel and other tech giants as an alternative to traditional cellular systems. It was intended to put Sprint on the cutting edge of the mobile data revolution while its competitors waited for LTE to emerge from the standards-making process.

The problem was Sprint was in dire financial straits after the Nextel acquisition. It couldn’t afford to build the network. After launching Wimax in three cities, Hesse turned Sprint’s 4G networks and its spectrum over to Clearwire, which had funding from a range of tech players including Google(s goog) and Intel(s intc).

The move effectively put Sprint’s mobile broadband future into the hands of a company Sprint didn’t directly control. When Clearwire also started to suffer financially during last decade’s recession, its network construction ground to halt with only a third of the U.S. population covered. Verizon(s vz) and AT&T(s t) accelerated their LTE deployments and quickly lapped Sprint in both 4G coverage and capacity.

As support for the Wimax standard collapsed globally, Sprint was forced to swallow its pride and commit to LTE. But because of its entanglements with Clearwire, it couldn’t just shut down the network and start over. That led to a network situation that bordered on the absurd. For more than a year Sprint was maintaining service over four different network technologies — CDMA, LTE, Wimax and iDEN – spread out over three different frequency bands.

Hesse’s Network Vision is hardly 20/20

In December of 2010, Sprint decided to scrap the networks it had and build everything anew under an ambitious program called Network Vision. The idea was to create a next-generation network infrastructure on which it could use any 2G, 3G or 4G radio technology. And last year, it launched the beginnings of Spark, its 4G network to end all 4G networks.

As with past Sprint network plans, the project was technologically daring, but Sprint again succumbed to its tendency to delay and dawdle. Nearly four years later Network Vision is still not complete, and Spark is still in embryonic form; only the city centers of 27 markets are seeing a Spark signal. What’s more, all of the big technical advances that promise to make Spark a killer network aren’t yet deployed. They won’t come until late 2014 or next year – assuming there aren’t further delays.

[pullquote person=”” attribution=””]You can’t say Hesse’s reign at Sprint has been a success, unless your measure for success is keeping Sprint out of bankruptcy and complete financial insolvency.[/pullquote]

Meanwhile, Verizon(s vz), AT&T(s t) and a newly invigorated T-Mobile(s tmus) continue to strip away at Sprint’s postpaid and prepaid (once Sprint’s great strength) subscribers. Complaints about Sprint’s network coverage, availability and speeds are mounting as the dust kicked up by its network construction takes its toll.

Here’s a very telling fact about the Hesse era: When Hesse took over the reigns Sprint had a total of 53.8 million subscribers, 76 percent of which were valuable postpaid subscribers. At the end of the second quarter – Sprint’s fiscal Q1 – Sprint had 54.6 million subscribers, but the number of postpaid connections had fallen to 54 percent.

In the last seven years we’ve experienced enormous growth in the U.S. mobile industry driven by the smartphone and most recently the tablet, but Sprint has barely ticked up in size.

Judging Hesse’s tenure

You can’t say Hesse’s reign at Sprint has been a success, unless your measure for success is keeping Sprint out of bankruptcy and complete financial insolvency. But I would argue that many of the problems Hesse was forced to contend with weren’t of his own making.

The decisions Forsee and the Sprint board made in the years prior to Hesse taking had disastrous consequences. Even the move to give up Sprint’s 4G assets to Clearwire was set in motion before Hesse arrived at the helm.

What’s more, Hesse didn’t get much support from its current owner, Masayoshi Son’s SoftBank. Hesse has long been hampered by Sprint’s financial problems and its love-hate relationship with Clearwire, but SoftBank’s purchase of Sprint and Clearwire was supposed to solve those problems. Sprint would have the financial backing of the Japanese telecom giant, and once again its 4G destiny would be its own.

After SoftBank CEO Masayoshi Son took ovr Sprint chairman he immediately started looking for toward the next acquisition opportunity (KAZUHIRO NOGI/AFP/Getty Images)

After SoftBank CEO Masayoshi Son took ovr Sprint chairman he immediately started looking for toward the next acquisition opportunity (KAZUHIRO NOGI/AFP/Getty Images)

But instead of buckling down to focus on preserving customers, innovating new service plans and building its long-delayed miracle network, Son immediately started looking toward the next acquisition. Hesse couldn’t commit fully to building up Sprint with Son angling to buy T-Mobile since the Sprint of today could be radically different than a combined Sprint-T-Mobile of tomorrow. What made matters worse was the Son’s quest was almost quixotic given the current regulatory attitudes toward consolidation among the nationwide operators. Sprint basically just gave up a year of its new life on this fool’s errand.

That’s always been my biggest beef with Sprint. It never seems to live in the present. It’s always looking ahead to the next acquisition, to the next auction, to the next technological advancement – if it could just overcome this one hurdle all of its problems would be solved. Looking to future isn’t a bad thing, but in Sprint’s case, it created a kind of stasis in which it refused to cope with its current situation.

Hesse certainly can’t be absolved of sharing that mindset. He led the company for seven years. In that time, not only did he fail to solve Sprint’s original problems, he created new ones. But I think that mindset is something much more firmly grounded in Sprint’s culture, and instead of fixing that flaw when he arrived, Son only reinforced it.

 

 

 

20 Comments

Steinar Andersen

I am pulling for Sprint (I use one of their MVNO’s….. textnow.com using a Samsung Galaxy S3). Paying $18,95 a month for Sprint’s LTE / 3G network and textnow’s voip cell/wi-fi solution depends on Sprint succeeding. It isn’t perfect, no. But $18.95 a month using an LTE network on a decent Samsung Galaxy S3 phone is pure Nirvana for this unemployed Veteran with minimal funds.

Michelle Goings Dobrev

The one thing that could save Sprint immediately is to let customers combine “Framily Plans” with other people that they actually KNOW. I currently have 10 family members on Sprint 4+3+1 on all different accounts. As it stands right now, we cannot combine them. Fix THAT and you will fix any post paid problem. Just saying….

"The" Charles

I think you did a great job on this Kevin, but i think you missed the one mark that started the chain reaction of one bad decision after another. A lot of the bad decisions that were made seem to all revolve around their financials. What position would they have been in if they would never have purchased a dying company like Nextel for 36 billion? They would have had the financials to deploy Wi-Max without having to turn it over to another company because they didn’t have the money to go it alone.

While I am not a Dan Hesse fan…….he seemed to have the cards stacked against him from day one stemming from that merger.

This makes me miss Bill Esery and his go it alone philosophy.

Kevin Fitchard

Thanks Charles,

Yep, two financially struggling companies merging means you get one big financially struggling company. Would Sprint-T-Mobile be any different?

Rusty

I worked for Sprint in Tech Support in OKC. Hated it from day one! It was the worst job I ever had! Everyday was lieing to customers about their service and how their service would be so much better when the “Network Vision” was completed in their area. I dropped Sprint as my phone carrier soon after I quit and went to T-mobile where I’m very happy with my service!

Carmen

Rusty, you are so right! If consumers knew half the truth about Sprint, wait, they already do. It’s exactly why consumers are leaving in droves. What many people also may not realize is that the network upgrade towers were upgrading to 3G service. Also, the network vision upgrades changed the coverage area for customers who had service, to now no service. So those who had pretty good service now have horrible service. Currently, I’m still employed with Sprint, and looking for a new job. I hate my job, and hate it for the customers who have no service, but yet and still are expected to keep paying for less than satisfactory service.

calvin200

I am not getting LTE at my house because things were upgraded. With 800 MHz put on how can you say Sprint coverage area has decreased?

Carmen

The employees that work at Sprint are miserable! Employees are faced with upselling every call that rolls through, making offers on very account, it’s the company trying to boost their profit. If you focus on trying to solve the customers issue and you don’t make what they call an offer that is provisioned on the account, customer service reps are placed on levels and written up and eventually fired. Majority of their customer service reps are against up-selling, asking how can a person upsell to customers who’s service, well, sucks! Customer service reps hands are tied, most of the tools that were at their disposal to help the customer has been taken away, which are leading many long standing employees to jump ship. Trust me when I say, employees are just as fed up with Sprint as the consumers are. If they could tell you their thoughts freely without consequence they would.

nqy

But the folks who made those bad network decisions are still there, rolling out a network that is incompatible and in the wrong places.

Kevin Fitchard

Hey nqy,

Well, the core Nextel-Wimax crowd is gone, but I think I see your point. Hesse and team compounded previous bad decisions with some of their own.

Madlyb

Some of the key problems may not have been of Hesse’s making, but ultimately it was his responsibility to right the ship and in that he failed miserably. The fact that he had one of the largest compensation packages in the industry was just salt in the wound.

I would say that he won’t be missed, but I already solved that problem by leaving the network a couple months ago after suffering a year of absolute misery with their grand ‘new’ vision.

Good riddance, here’s hoping he retires instead of mangling another company.

Kevin Fitchard

I agree Madlyb,

I wasn’t getting Hesse off the hook completely. He obviously was brought in as a fixer, and he had seven years to do that fixing, but didn’t pull it off. As others have pointed out, he could have started network vision sooner and built it faster and shut down iDEN sooner. He definitely should have tried to do something about Clearwire sooner.

But I also think Sprint’s problems are bigger than the CEO. Look at Son. He was supposed to fix Sprint, but he wound up getting sucked into the same Sprint “All we need to do is wait for the next big thing” mindset.

DD

Kevin, I will disagree with you on one point. Son did not get sucked in. Acquiring T-Mo was always in the plan along with getting a new CEO that thinks like he does. Someone who embraces change and likes to shake things up. Son thinks big and he pushes hard! That was the next step after acquiring Sprint. It took time for that to develop and now we know there won’t be a merger. At least he got half of what he wanted so now it’s on to Plan B. The new CEO’s marching orders are to fix Sprint.

FAQMD1

Kevin,

Not necessarily a fan of Hesse, but you fail to mention that the gov kept Sprint form using WiMax they way they wanted and also forced Sprint to not shut down the iDEN network earlier like they wanted to do. A

As I recall the Nextel purchase was predicated on iDEN staying in place for a certain amount of time or else the gov would not have approved the purchase. Sprint wanted the spectrum so they agreed to the T&C’s of the deal.

It is really getting old how people forget the context in which certain decision were made by Sprint. Not to say they were/are perfect but it is somewhat sophomoric for people to constantly whine about Sprint service when I can tell you the same thing about T-Mo or Verizon service from personal experience.

Kevin Fitchard

Hi FAQMD1,

Thanks for commenting.

You’re definitely right. Sprint had it’s feet held to the fire in both the case of Nextel of and 2.5 GHz, but it knew it faced all of these conditions when it chose to buy Nextel and staked its future in 2.5 GHz. And in the case of WiMAX, it could have executed far better. Turning your spectrum over to another company, and then sitting on your hands for years isn’t exactly making the most of an already bad situation.

Carl

Sprint’s problems come from being headquartered in Kansas where people think living twenty years in the past is something to be proud of. Over time their insistence to validate backward thinking spread throughout Sprint’s management everywhere. My guess is by 2020 Sprint will be put out of its misery and its managers will take their mental regression/disease with them over to infect other telecoms stupid enough to hire them.

Scott

This is actually spot on and I have been saying this for years. Moving and keeping HQ to an area of the country where the mindset is not about the latest and greatest just put a nail in the coffin.

Easy does it is the epitome of Middle-America, therefore, is ingrained in their management’s culture. It also explains why Sprint has such a strong following with this exact same attitude. Think about it, we also see this in politics.

FAQMD1

You obviously did not read or understand what was written in the article.

One of the premises throughout the article is that Sprint is too forward thinking.

But don’t let what was written get in the way of your obvious bias about middle America.

You can count on T-Mo being purchased by another entity or out of business long before Sprint demise. T-Mo’s strategy of buying market share (lowering prices) can only last for so long then reality hits.

Venkat Tarakad

Excellent article that clearly highlights Sprints problem. Hesse wasn’t a great CEO. But the fact that Sprint did not file for bankruptcy during his tenure is an achievement in itself. Sprint took all the wrong decisions from buying Nextel to choosing Wimax. Son is just continuing that strategy trying to by T-mobile knowing very well how AT&T failed miserably. Very soon Sprint will behind T-mobile and lag in obscurity.

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