Sprint started life as Brown Telephone in Abilene, Kan., more than a century ago, a manual switchboard operation linking homes to Western...
Sprint started life as Brown Telephone in Abilene, Kan., more than a century ago, a manual switchboard operation linking homes to Western Union or the town hall.
It started selling long-distance service in the mid-1980s and built a fiber-optic network and a majestic brick campus that is a source of civic pride and commercial power in the Kansas City area.
Now, Sprint is about to redefine and reinvent what it means to be a telephone company by cutting itself free of the phone-line business, and focusing on its prospering wireless division. It’s also about to move its corporate headquarters to Reston, Va., and partner with cable companies to offer technologies to replace the traditional phone.
The new strategy, as outlined by Chief Executive Gary Forsee, means Sprint, along with cable companies, would market a megabundle of entertainment and communications services. This would include Internet-based phone service, high-speed Internet connections, and television, music and entertainment viewable on a cellphone. In that world, consumers would communicate through the air, and through cable lines in their homes, without subscribing to services from the old phone company.
From Sprint’s merger with Nextel Communications, expected to close later this summer, Sprint-Nextel will form the largest independent wireless carrier that has no corporate ties to a traditional phone provider.
Sprint’s bigger competitors, Verizon Wireless and Cingular Wireless, belong to empires ruled by Verizon and SBC, already the two biggest phone companies in the country. Verizon recently bought MCI and SBC bought AT&T. It’s formidable competition.
Forsee, 55, an engineer by training, recognizes his company has fully switched sides.
“If we’re aligned with cable, we’re definitely not aligned with the Bells,” he said recently.
With parent companies having traditional phone-line business to defend, Verizon and SBC are offering bigger packages of phone-and-entertainment services that tie traditional phone services with wireless, Internet and television offerings. Each is partnering with satellite-TV providers and spending billions of dollars to build a fiber-optic network they say will eventually carry television-style programming.
By comparison, nearly 80 percent of Sprint-Nextel’s business will come from its 35 million-plus cellphone users, and it will have roughly 60,000 employees — about a quarter of Verizon-MCI.
It’s essentially a fight that pits the muscular against the lean and nimble, analysts say.
“I have worries about [Sprint-Nextel’s] ability to compete versus SBC and Verizon,” particularly because the buyouts of ATT and MCI give Verizon Wireless and Cingular the kind of backing that will make them that much more powerful, said Patrick Comack, an analyst with Zachary Investment Research in Miami.
On the other hand, “Sprint won’t be distracted,” Comack said, and “wireless is the only area that’s assumed to grow in the future.”
Forsee said he recognized size would be an issue, and that is what spurred the merger with Nextel. “We had to think about whether we wanted our No. 1 and No. 2 competitors to be twice as big as us,” said Forsee, who will be CEO of Sprint-Nextel. “At the same time, our strategy was to be an enabler of the cable companies,” he said.
Forsee, who had worked at Sprint for 10 years, left BellSouth to rejoin Sprint as its CEO in 2003. Long-time CEO William Esrey and President Ronald LeMay were forced to quit in 2003 for using a questionable tax shelter for personal finances.
Forsee said Sprint management had been considering its future since his arrival. They kept coming back to one thing: wireless.
“Nothing’s risk-free. Status quo can be a formula for disaster,” he said. “We’re going to make the bold moves to be competitive.”
Sprint plans to roll out an ad blitz encouraging customers to “cut the cord” and abandon land-line phones. It plans to spend nearly $3 billion on its network to get better signals into buildings so that all-wireless will be more appealing to customers.
Already, 21 percent of Sprint subscribers use cellphones as the primary line, said Timothy Kelly, president of the consumer unit. The merged company will try to further that trend, he said.
For now, Sprint is trying to design products and pricing plans that appeal to groups of customers, like female-led families or young, wired professionals, who are likelier candidates for all-wireless plans, he said.
For customers who want a line at home, Sprint is developing a cellphone hybrid with Wi-Fi technology built in. That would allow a user to make calls over an Internet phone line at home, but over the cellphone network away from home — bolstering cable companies’ ability to market Internet-phone systems as a replacement for regular phone service.
Verizon Wireless and Cingular would never do that, said Len Lauer, Sprint’s president and chief operating officer. “That would be like parents cannibalizing their children.”
Over time, Sprint and Nextel could build a bigger wireless superhighway, using the high-frequency swath of airwave licenses they control. If the right technology develops, analysts say, those airwaves could be used to transmit very high speeds of mobile data and even TV channels.
Wireless is the industry’s fastest-growing area, with more than 182 million U.S. subscribers and a growth rate of 15 percent a year, according to the trade group CTIA: The Wireless Association.
Consumers are disconnecting their local phone lines at a rate of about 6 percent a year, according to the most recent statistics from the Federal Communications Commission.
Through partnerships with cable companies like Cablevision and Charter Communications, Sprint already sells cellphone service and Internet-phone service. Sprint plans to deepen such relationships, integrating more cable-video programming on its phones, and partnering with companies such as ESPN and Time Warner Cable to sell specially branded phones that tie in with the cable programming.
It can sell more phones, ringtones, mobile videos and Internet phones to a broader audience, while selling the tools that enable cable companies to compete against the telephone giants.
“Cable is exploring ways to get into wireless,” and Time Warner Cable’s partnership with Sprint and MCI to sell Internet telephone service has paid off, said Mark Harrad, a spokesman for Time Warner, which has been selling Sprint service on a trial basis in the Kansas City area.
“It’s very rare for a leopard to change its spots, but that’s what [Sprint’s] done” by adopting a wireless-and-cable strategy, said Scott Cleland, chief executive of research firm the Precursor Group. The wireless and cable industries need each other, he said.
“We could sell stand-alone wireless service, but growth there is limited. We want to be the third screen into someone’s life,” connecting cellphone users to their televisions and computers, Lauer said. “We see our interests aligning with cable.”
Former Terabeam CEO named Sprint executive
Sprint has appointed Daniel Hesse chief executive of the local-telecommunications division that it plans to spin off.
Hesse, 51, previously worked as CEO of Terabeam, a Seattle-based company specializing in wireless technologies.
The appointment puts in place top leadership for Sprint’s local unit, which will become a separate company after the acquisition of Nextel Communications. Hesse will oversee local operations in 18 states with about 16,000 employees.
Hesse has over 27 years in telecommunications, including 23 years at AT&T, where he was CEO of the Redmond-based wireless-services unit from 1997 to 2000, Sprint said. Hesse is also a director at Nokia, the world’s largest cellphone maker.