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A GigaOM conversation with Sprint’s Dan Hesse on five harrowing years as CEO

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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.

Hesse staring in one of many Sprint "Simply Everything" commercials
Hesse staring in one of many Sprint “Simply Everything” commercials

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.”

at&t-mobile-mergerEchoing 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.”

Sprint logo signIn 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.

Hesse (third from left) and the CEOs of AT&T, Verizon and T-Mobile at CTIA Wireless
Hesse (third from left) and the CEOs of AT&T, Verizon and T-Mobile at CTIA Wireless

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

19 Responses to “A GigaOM conversation with Sprint’s Dan Hesse on five harrowing years as CEO”

  1. shertheteacher

    today, on my short lunch break, I called sprint for help. I was transfered from the first person (agent) to the second. The second repeated the same script. I asked for a supervisor, and was transfered a third time. The third agent repeated what the first and second said. I did not talk to a supervisor, my lunch break was over, and I got NO help with my issue. Been a proud Sprint customer. Got all the Family and some of the friends enlisted into Sprint. Nope, after todays non- assistance, I shall NOT be continuing my contract. On way back to the old carrier

  2. William Diaz ✔

    I can honestly say that Sprint has a road almost too long to travel to rebuild its brand. The only reason Nextel merger failed was that Sprint assimilated Nextel into horrible service, and forced CDMA-like plans on Nextel consumers. Had it been the other way around where Sprint moved CDMA plans to mimic Nextel and their 6 second billing, stellar customer service, and immediately recycled even the smallest shred of Nextel spectrum for use on CDMA, Sprint might have been better than AT&T but still below Verizion. Sprint basically force fed Nextel crap, kicked out the management, and forced customers to pay for the bill all for some spectrum that ironically wasnt even reused until Sprint almost collapsed, that collapse however is still close at hand since even the Nextel spectrum now, while great addition, wont solve many of the problems Sprint has…Which is leveling out their porportion of customers over different frequencies so they can expand 4G into all spectrum frequencies rapidly. Something that well could have been avoided had Sprint really cared years ago.
    With regards to better days for Sprint, sure they are seeing better days. Their customer service has come a long way, but still nothing like AT&T or Verizon has, yet it still is above T-Mobile (which at one point I would bet my life on their customer service staff), so thats a plus. Their network still blows big time, even with many of the Network Vision improvements, and no Nextel recycling will help that in the foreseeable future, which is why MOST Sprint customers, even non-Sprint customers are extremely excited about Softbank… Softbank = MONEY! Money = better network, better plans, better service period! While Sprint has no money itself, and needs what they have to pay off Apple and revamp their network desperately, taking a chunk of what they do not have and putting that into Clearwire again, like the Nextel merger is really precarious, but at the end of the day, immediately raises the value of Sprint more than the $2.2Billion invested. Clearwire = dead, but spectrum is forever, and sure 2.5Ghz doesnt travel well or penetrate walls, it definitely clears the load off strained 800/1900 networks, and has nearly unlimited capacity in LTE-Advanced scenarios using that 160Mhz worth of airwaves! That alone will set Sprint up majorly. So I do see Sprint coming out ahead, but not anywhere remotely near where it was when say, it first launched its EVDO network overnight!

    • Legacy Nextel employee? Sorry, but the management of Nextel was made up of some of the slimiest, most self-serving, dishonest people in telecom. They slapped lipstick on their pig of a company and duped Forsee (an idiot) into buying it, riding their golden parachutes on down. Nextel would have gone under in a year if Sprint hadn’t bought it. The only remaining problems at Sprint are the legacy Nextel employees that remain…

  3. Here’s a whiz-bang idea for Hesse – if you want to differentiate yourself from the competition, offer what they DON’T have. All the talk about Sprint’s takeover of Clear has been about spectrum. Newsflash: consumers don’t shop for spectrum! Consumers want devices and plans that let them work, communicate and have fun. Why did Sprint eliminate unlimited data plans last year for it’s mobile hotspot devices? And if they are taking over Clear, why don’t they match Clear’s services and offer speed-based pricing on their mobile hotspot data plans?

    Consumers welcome choice. Clear has been the only mobile broadband provider to offer unlimited at an affordable price; without the overage charges, ridiculous data caps and senseless throttling every other U.S. carrier has forced upon it’s subscribers. Hesse would be wise to make a stand and offer Sprint’s customers something beyond shared data plans, especially for mobile professionals who need always-on connectivity and refuse to count geebees.

  4. Maxsilver

    “Sprint emerged form its dark days”

    Erm, Sprint’s still in their dark days.

    Their Network Vision is a small light at the end of a tunnel, but they still have 1-2 more years of pain ahead of them.
    Sprint data is so bad, it’s unusable in 90% of the nation. Operators like MetroPCS get higher scores on data speeds and data availability

    Their Network Vision helps a little, but it only makes them competitive with where Verizon / AT&T / T-Mobile / MetroPCS are today. In two years, their competitors will have moved forward, while Sprint will still be trying to finish deploying 3G / 3G+ data services.

    Their LTE launch is already fundamentally flawed (only 5×5 LTE, and none of their devices support any of the upcoming 800/iDen or EBS/Clear LTE.)

    Sprint has a long history of network failures, starting from the switch from GSM to CDMA, and (so far), it continues to be making poor network decisions.

    Until they get serious about fixing their network, Sprint’s “dark days” will continue to cloud them, now and into the future.

  5. internazi

    if you read and think, this article highlights how badly sprint has deceived, failed and manipulated customers. Any and all threads at all the major commercial networking sites consumers repeatedly have the same complaints that are tradition problems with sprint.

    Wimax flunk, LTE sprint had planned had Huawei supplying the equipment….that got shot down….they jump on another tech support network to bail them out of a service they were promising to put out over a year and a half ago because wimax was failing.

    Oh nobody read the articles about sprint abandoning clearwire last year? Now they are back kissing clearwire ass…

  6. Forget the LTE… I want to this Industry to jump to the next level… If it works, then lets get going…. What are you and the FCC waiting for?? In a perfect world, had Sprint introduced LTE Advanced, in whatever form..TDD-LTE ect.. we all would be paying less for faster service….“I will not talk about paying for internet or 3g phones they sell us”.
    It is clear to me that until this industry milks all they can out of the 4g service then…. That’s all we will get for some time…. America the Greedy? “C’MON MAN”!

    • Kevin Fitchard


      I think they’re getting there. LTE-A is an iterative process. You have to LTE first before you can make it Advanced. Sprint will is deploying its first LTE carrier now. Eventually it will deploy another at 800 MHz and use LTE-A technologies to bond them together. The crazy stuff (hetnet, relays, 4×4 MIMO) will come later.

  7. Hesse overpaid for the iPhone and isn’t selling iPhones fast enough to get ahead. With an iPhone to sell, Sprint lost 423,000 subscribers in the July to September period. It lost contract-signing subscribers for the first time in years.

    • Kevin Fitchard

      Hi Da Ge,

      Definitely a fair criticism. Sprint’s definitely in a bind this year. All of the gains it would get due to the iPhone are being offset by the exodus from Nextel. It’s probably going to get even worse in Q1 when its new punitive fees for staying on Nextel go into effect.

  8. David Vega

    Very good article. Plenty of folks like to downplay Sprint as well as Dan being the the top man in the organization. But the man has and continues to make very good decisions in bringing Sprint out to the forefront among the other companies. Sprint reminds me of Hyundai, which was marred with so many negatives that many wouldn’t even think of buying it, but they improved and and are now one of the most innovated and copied (ten yr warranties) and have gathered numerous awards in both customer service and reliability in their products. Sprint is on that same path with Network Vision on the right track, unlimited still in place, and offering devices that customers want.

  9. If Sprint wants to be perceived as the good guy in wireless, and a friend of the consumer, they need to offer lower monthly rates to customers with unsubsidized phones, and make it easier for mfrs to build phones for their network without Sprint’s involvement. That would set them apart form ATT and VZ, and allow them to offer less expensive service.