When Dan Hesse took over the reins of Sprint (s s) on Dec. 17, 2007, he had quite the mess on his hands. That fourth quarter, Sprint was getting ready to announce not just an exodus of 683,000 subscribers but also an astounding financial loss of $29.5 billion, one of the largest ever recorded by a major U.S. company.
Sprint’s acquisition of Nextel two years earlier was a heavy albatross around its neck. Its customer service had gone down the tubes, employee morale was low, and the company culture fractured; worst of all, Sprint’s once loyal subscribers were fleeing in droves. Hesse knew he was taking over a struggling company, but in an interview with GigaOM he admitted that even he didn’t realize the magnitude of Sprint’s troubles until he arrived. “When I took over the assignment the problems were more severe than I anticipated,” he said.
Fast forward five years, and it’s plain to see Sprint has turned several corners. Its net subscribers totals are increasing rather than shrinking, helped along by the iPhone(s aapl). Its improved financials have sent Sprint’s stock skyrocketing, its share price more than doubling in value in the last year. Its customer service is now consistently scoring the highest marks in surveys conducted by J.D. Power and other agencies.
Sprint hasn’t fully recovered from the dark days of the last decade. Seven years after the merger it’s still dealing with the fallout of Nextel, it still has more work to do to repair its brand, and during the several years Sprint was healing its wounds, its biggest competitors AT&T(s t) and Verizon Wireless(s vz)(s vod) took advantage of Sprint’s problems to become bigger and more formidable.
But it’s fair to say there’s a lot more upside than downside to Sprint these days. Japan’s Softbank certainly thinks so. It’s investing $20.1 billion to take control of the country’s third largest carrier.
A few days before his fifth anniversary at Sprint, Hesse sat down with GigaOM to discuss his tenure as CEO and the five years of trials and tribulations Sprint has endured on its path to recovery.
Why AT&T is to thank for Sprint’s new identity
We asked Hesse what the most significant moment of his tenure was, and we were surprised by the answer: AT&T-Mo.
“The most important decision that has been made in the five years I’ve been here was the decision to fight the acquisition of T-Mobile by AT&T,” Hesse said. “It fundamentally defined the industry, which in turn defined Sprint in terms of who we are is and what our role in the industry is.”
Echoing thoughts he gave in an interview with GigaOM last year, Hesse said that the AT&T’s failed attempt to consolidate two of the Big 4 made him realize that there was no longer such a thing as the Big 4. The industry had bifurcated into the Big 2 and everybody else.
“Through a combination of acquisitions of spectrum and acquisitions of other companies, as well as organic growth, AT&T and Verizon together became a much larger percentage of the overall wireless market,” Hesse said. “Five years ago I wouldn’t have called them a duopoly. Today they’re darn close. If AT&T had been allowed to acquire T-Mobile than we would have clearly had a duopoly.”
Sprint can’t take credit for killing AT&T-Mo, though its vociferous opposition to the deal likely influenced the Federal Communications Commission and Department of Justice’s decisions to quash it. More significantly, the deal helped shape Sprint’s identity. Hesse said it made Sprint realize that many of its interests were now more closely aligned with smaller competitive carriers rather than the Big 2.
Sprint began defining much of its strategy by focusing on services and policies the market was demanding but AT&T and Verizon weren’t delivering. Ma Bell and Big Red killed unlimited plans. Sprint embraced them. They concentrated on contract plans. Sprint dived whole-hog into prepaid. While Verizon and AT&T are still keeping mobile virtual network operators (MVNOs) at bay, Sprint has become a hero to the virtual operator. Sprint had started down that path before AT&T-Mo ever happened, but Hesse said the attempted merger reinforced the notion Sprint was on the right track.
While AT&T-Mo’s approval would have stifled competition, it’s failure had the opposite effect. The government has made its position clear: it wants to see strong third-and fourth-place operators to keep the Big 2 in check, and that has spurred new interest in the likes of Sprint and T-Mobile.
“Investment into the U.S. wireless industry would dry up if you had a government sanctioned wireless duopoly,” Hesse said. “Softbank has said publicly it wouldn’t have invested a thousand dollars in the U.S. if that merger had gone through.”
The Nextel problem
The biggest problems Hesse has been forced to fix were not of his own making. When he took over in late 2007, his predecessors had made two significant decisions that still haunt the company to this day: the acquisition of Nextel and the embrace of WiMAX as Sprint’s future 4G technology.
“With 20/20 hindsight, the Nextel merger was a mistake,” Hesse said. “The synergies, if you will, that we had hoped for and planned for didn’t materialize.”
In fact, Hesse may be just a few months away from shedding that Nextel albatross for good. June 30 is the date he’s set for shutting down Nextel’s iDEN network, at which point Sprint will start refarming its airwaves for LTE. It will be a painful six months. There are still 3.1 million Nextel and Boost Mobile subscribers on iDEN, many of them clinging to the Direct Connect push-to-talk service that originally made Nextel so popular. So far, Sprint has been able to convert a fair amount of iDEN customers into CDMA customers, though, and has managed to attract 1 million subscribers to its new CDMA version of Direct Connect.
As for WiMAX, Hesse isn’t quite ready to call it a failure, even though the rest of the wireless industry has dismissed it. Hesse isn’t blind. He knows LTE is the future — and Sprint is in the early stages of a nationwide LTE rollout — but Hesse also maintained that Sprint got more out of WiMAX than the industry gives it credit.
“One of the big decisions I had to make early on whether to mothball and shut down the WiMAX business and take a big write off,” Hesse said. At the time Sprint simply didn’t have any money to invest more in a new network strategy, Hesse said. Its choices were making its fateful deal to merge WiMAX operations with Clearwire(s clwr) — or do nothing at all. The Clearwire deal did give Sprint the country’s first 4G network, though lack of funds prevented Clearwire from completing two-thirds of its network, and Verizon Wireless quickly caught up with LTE.
“Time will tell,” Hesse said. “It’s too early to say whether [WiMAX] was a good call or a not so good call.”
A lot of history’s judgment will probably be based on the eventual fate of Clearwire. A day after our interview with Hesse, Sprint made a bid to buy out Clearwire completely. (Update: Sprint and Clearwire revealed on Monday that the Clearwire board has agreed to a $2.2. billion takeover deal.)
Becoming the carrier that isn’t hated
If Hesse wants Sprint to be perceived as one thing, it’s as “the good guy” in the U.S. wireless industry. While AT&T and Verizon Wireless increasingly make moves that go against the desires of their customers and trends in technology, Hesse said, Sprint will try to become the most pro-consumer and open carrier out there.
There are the big ticket items, such as pricing structures like its unlimited data Simply Everything plans. But there are small moves as well, such as opting to use Google(s goog) Wallet as a mobile payments solution, rather than inject itself forcibly into the NFC commerce chain. It’s also tried to claim the mantle as the country’s greenest operator.
Still, Sprint is having a hard time explaining its new role to consumers. Hesse said that its current customers know the new Sprint and like what they see, as indicated by its stellar rise in the consumer survey rankings. But for customers who have never owned a Sprint phone or left angrily during its rebuilding period, the name Sprint still has plenty of negative connotations.
“A brand can be tarnished very quickly, but it takes a long time to rebuild it,” Hesse said. “That’s the issue we had. The company had let the customer service and customer experience deteriorate, and we really have to work hard to change that perception. … We have changed the perception of Sprint customers very quickly because they have noticed how much we’ve improved. It’s more difficult to change the perceptions of non-customers.”
Sprint logo photo courtesy of Shutterstock user Susan Law Cain