Sprint's Hesse leaves carrier the way he found it: Needing a turnaround

Dan Hesse, stepping down as chief of the US's third-largest wireless carrier after seven years, helped clear up Sprint's baggage. But the company still lacks a key essential: new subscribers.

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Sprint CEO Dan Hesse at an event in Chicago. Sarah Tew/CNET

Dan Hesse was dealt a bad hand when he took the reins at Sprint, stepping into a wireless carrier that was working its way through a messy merger that was costing it customers and tarnished its reputation for quality service.

Seven years later, Hesse can list the many changes he's made that helped Sprint regain some of its lost luster. But one thing that still eludes the carrier: new customers.

Hesse's tenure as CEO of Sprint comes to a close after the carrier said Wednesday he's stepping down. His successor is Marcelo Claure , 43, head of wireless distributor Brightstar and a Sprint board member with close ties to SoftBank, which owns a majority stake in both companies. "He has the management experience, passion and drive to create the strongest network and offer the best products and services in the wireless industry," Sprint Chairman Masayoshi Son said of Claure in a statement.

The simple story of Hesse's time at Sprint is that he's leaving the company in the same state it was in when he joined: a carrier with a wounded reputation still looking for its comeback. Rivals AT&T and Verizon continue to dominate the market for wireless service in the US, and though Sprint last month said it had swung to a profit in the fiscal first quarter, it still lost a net 220,000 subscribers.

But a more nuanced look at Hesse's tenure at Sprint reveals someone who helped clear out much of the company's baggage, even if he ultimately couldn't overcome those legacy problems himself.

"[Dan Hesse] rescued the company from a catastrophic merger and stabilized it," said Roger Entner, an analyst for Recon Analytics. "He was a popular leader with Sprint employees -- they genuinely liked Dan."

Hesse, who was a veteran executive from AT&T and previously ran Sprint's wireline spin-off, Embarq, inherited one of the bigger messes in the telecom world. When he took over as CEO in December 2007, the company was weeks away from filing for bankruptcy. The prior management team, led by CEO Gary Forsee, had bungled Sprint's takeover of Nextel, failing to maintain either networks and sparking a massive wave of customer frustration and defections. The combined Sprint Nextel brand stood for shaky service at a time when voice call quality was everything.

Riding on a reputation as an executive who preferred simplicity when it came to dealing with customers, Hesse's trademark offering was the "Simply Everything" plan -- the first time a carrier offered unlimited flat-rate pricing on voice calls, text messages, and data . As the years progressed Sprint started showing improvement in customer service metrics -- it is the most improved company in the American Customer Satisfaction Index over the last six years -- and the perception of its network began improving.

But the Nextel albatross proved too heavy, and the prior management's decision to invest in WiMax technology -- which gave it an early but short-lived advantage in network speed -- complicated its future network deployments. In 2012, Hesse decided to overhaul its entire infrastructure, which included shutting down the Nextel network in 2013. The move led to a painful two years leaving Sprint in its current state -- with a track record of millions of subscribers having left the service.

On one hand, it's a company with a lot of promise in its Spark-enhanced LTE network. On the other, it's a company that lags behind its rivals in overall LTE coverage -- the fastest wireless service available today -- and has again developed a reputation for spotty network quality.

Sprint also remains a company with many unanswered questions about its future. AT&T and Verizon Wireless continue to pummel the carrier in attracting new users, and the momentum-loaded T-Mobile, the fourth-largest carrier in the US, seems poised to surpass it on a subscriber basis.

Even so, the situation isn't as catastrophic as when Hesse took over.

"I'm proud of the resilience of Sprint's people during a difficult transformation," Hesse said in a statement. "I'm optimistic about how they will build on a foundation of innovation to succeed in the future."

Early days

I first met Hesse when he was the CEO of Embarq, the landline company that had spun off of Sprint in 2006. The interview was notable for one quality: Hesse, unlike most executives, didn't have a public relations "handler." He was alone when I ran into him, allowing the two of us to have a real conversation about the telecom industry.

That changed after he took over as CEO in December 2007. He became the face of the company through a series of well-received black-and-white TV commercials in which Hesse begged consumers to give Sprint another shot. With the commercials came the handlers and, he often joked, his bodyguards.

Hesse was in some ways what T-Mobile CEO John Legere is today: a snarky, irreverent, and charismatic leader willing to be the face of his company. He's known for wearing Vans in an industry filled with loafers and Oxfords.

While Hesse is not as outrageous as Legere, his mission was the same: rehabilitate his company's reputation by standing out from the crowd (Hesse was Legere's manager when they both worked at AT&T).

"He was a soothing pitchman who restored some credibility in the Sprint brand," said Avi Greengart, an analyst at Current Analysis.

Hesse quickly changed things. He slashed jobs and restructured the company to concentrate its work force in Overland Park, Kan. The company had previously made the decision to maintain a second headquarter in Reston, Va., where Nextel had been based. Hesse worked every day in his first three months on the job, only taking Christmas and New Year's Day off.

Hesse poured billions of dollars into both the Sprint and Nextel networks to improve service and call quality. The company had also committed to a 4G technology, but Hesse spun off the spectrum and infrastructure duties to Clearwire, which it would retain a majority stake in.

Thanks to the simpler flat-rate plans and improved service, customer complaints dropped.

Consumers, though, didn't legitimately reconsider Sprint until Hesse debuted the "Simply Everything" plan in March 2008. "Simply Everything" was the first time Hesse made a commitment to unlimited, which would be a hallmark of Hesse's philosophy of service for the core Sprint brand. He referred to the plan as a "nuke," or his way of referring to a plan that would disrupt the wireless status quo. He followed it up with "Any Mobile, Anytime," which let customers call any cellphone in the US for free , regardless of carrier.

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Sprint's campus store. Kent German/CNET

It wasn't the first time Hesse embraced unlimited; he was instrumental in bringing flat-rate calling plans to customers when he was the head of AT&T Wireless in the late '90s.

While many of the promotions worked at first, and Hesse shored up its core Sprint service, Nextel remained a problem and would continue to be a source of customer losses until the network was shut down.

Sprint, and the rest of the carriers, also had to deal with the rising powerhouse of Apple's iPhone. AT&T had an exclusive agreement to carry the iPhone, which won it millions of customers. Sprint threw a number of smartphones at the iPhone, including the Samsung Instinct and the purported "iPhone killer" Palm Pre. But nothing could stop the juggernaut of the iPhone. Sprint didn't have a legitimate blockbuster until it paired a phone with the faster WiMax wireless technology.

Getting in the fast lane

When Hesse stood on stage in Las Vegas in March 2010 to unveil the HTC Evo 4G, company watchers felt excitement. For the first time, Sprint had a mainstream device that showed off the network's speed advantage. The Evo 4G was the first smartphone to run on Clearwire's WiMax network.

The Evo was a hit, helping to net 1.1 million new customers in the fourth quarter -- its best results in nearly five years. Hesse had a winning smartphone franchise. More important, Hesse had a tool to demonstrate the improved network quality.

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The HTC Evo 4G. CNET

Sprint's undisputed edge in network speed, though, only lasted a little more than half a year. By the fall of 2010, Verizon launched the first markets using LTE, a newer wireless technology that has since become the standard in 4G.

Customer growth for its core Sprint service continued to hum, with its share of gross customer additions more than doubling between 2009 and 2012.

Its 4G advantage, however, suddenly became a headache. While a majority of Clearwire's stake was controlled by Sprint, its independent management team felt it could demand higher wholesale rates from Sprint, a tactic that angered Hesse enough that he threatened to walk away .

Sprint and Clearwire cleared up their pricing dispute in April. The distractions were a symptom of the larger problem: Sprint backed the wrong 4G horse. While it was the prior management team that chose WiMax, Hesse was forced to use the tech even as others moved to LTE -- the company couldn't make the same switch because of the different bands of spectrum it had cobbled together.

Hesse finally changed gears in December 2010 and focused on LTE with the announcement of his Network Vision plan, which would install equipment that could handle multiple wireless technologies.

Nearly four years later, work is still being done on that project.

Sprint-T-Mobile not to be

More recently, Sprint dropped its bid for T-Mobile , with both companies concluding that they couldn't overcome the regulatory hurdles, The Wall Street Journal reported yesterday.

It wasn't the first time the two were rumored to merge. Around 2011, Sprint and T-Mobile were widely rumored to be considering a merger. T-Mobile, which didn't yet have its firebrand CEO John Legere, had likewise underinvested in its network and was slow to adopt faster wireless technologies.

Which is why it blindsided everyone -- including Hesse -- when AT&T announced its plans to buy T-Mobile in March 2011. The timing was particularly awkward -- it happened the day before an annual wireless trade confab and ended up dominating the talk of the show.

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Sprint CEO Dan Hesse speaks at the Competitive Carriers Association trade show in New Orleans in 2013. Maggie Reardon/CNET

Hesse hasn't been afraid to show off his snarky side, and he was so full of barbs at the show's signature CEO roundtable panel -- when the heads of Verizon Wireless, AT&T, and Sprint sat together for a conversation on the industry (T-Mobile's CEO had withdrawn after the merger agreement) -- that the executives have never appeared on stage together since.

At the time, Hesse railed against the deal, saying it would leave too much power in the top two players.

At a fall wireless trade show that year, Hesse said AT&T Mobility CEO Ralph de la Vega looked like John Wilkes Booth, President Lincoln's assassin, but tried to play it off as a "compliment."

His comments weren't just the jabs of a jilted suitor; he spearheaded the opposition to the AT&T-T-Mobile deal, which was abandoned in December after regulators said they wouldn't approve it.

The death of such a high-profile deal is a part of Hesse's legacy.

A new Sprint

The Network Vision upgrades proved to be a lengthier and more complicated process than initially expected. Hesse made the decision to not only add new equipment, but to swap out its existing infrastructure, a painful process that caused service disruptions. "The only way to create a high-performance, low-cost network was to start over, to rip-out and replace everything and build a new network from the ground up," Hesse said in his memo to employees. "Combining these three disjointed networks into one was a can we couldn't keep kicking down the road."

The decision halted Sprint's momentum, as the work came as AT&T and Verizon Wireless raced to blanket the nation with faster wireless service. When No. 4 T-Mobile got into the LTE game in March 2013, it eventually surpassed Sprint in the breadth of its reach, and now boasts a far faster network.

The difference in speed remains stark. A recent test held by CNET editor Lynn La found Sprint woefully behind its competitors.

Hesse had a term for painful process, referring to it as the company's "Pardon our dust" phase. Customers haven't been as understanding, and the company lost a net 2.3 million customers in 2013. He was a long way off from his "Simply Everything" plan.

"(Hesse) failed to generate any compelling ideas in a rapidly changing wireless market," said Gartner analyst Bill Menezes.

Mysterious Sprint Spark phone
Sprint Spark is the name of its enhanced LTE service, which it promises to be faster than plain old 4G. Lynn La/CNET

Sprint appears to have new life after Japanese carrier SoftBank agreed to invest in the company in exchange for a majority stake, a deal that closed last year. At the same time, Sprint had acquired the rest of Clearwire with the intent to repurpose its valuable spectrum to enhance its own LTE network. Most importantly, it had shut down its Nextel network, finally freeing itself of the albatross that hung around the company for virtually his entire tenure.

Hesse and SoftBank CEO Masayoshi Son -- who also served as Sprint's chairman -- see things differently. Son is seen as an aggressive leader prone to quick, decisive action, while Hesse is known for taking a more tempered approach, according to analysts. Hesse decision was made in conjunction with the board and Son, but was "extremely amicable," according to a person familiar with the situation.

"Clearly Sprint needs something new at this stage," Menezes said. "Dan seems to realize that too," Menezes said.

SoftBank will want Sprint to shift into a higher gear under Claure, who at least inherits a company with far less baggage. He can thank Hesse for that.

About the author

Roger Cheng is the executive editor in charge of breaking news for CNET News. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade. He's a devoted Trojan alum and Los Angeles Lakers fan.

 

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