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The Sprint nightmare is far from over

Sprint Nextel reported huge losses for the fourth quarter. Its new CEO has a plan to get the company back on track, but it's a long road ahead.

The news for Sprint Nextel just keeps getting worse as the company struggles to rebuild its business and its reputation.

On Thursday the third-largest wireless phone company in the U.S. announced a $29.5 billion loss for the fourth quarter of 2007 and warned that the company would continue to lose customers at an alarming rate in the coming year.

The company eliminated its dividend and wrote down the full value of its $35 billion merger with Nextel Communications. The companies merged in 2005, and it's been a bumpy ride ever since with many of Nextel's customers complaining of poor service. Sprint also said that it had to borrow some $2.5 billion just to get access to cash.

For several quarters Sprint has been plagued by massive customer defections. And on Thursday it reported it had lost 683,000 customers in the fourth quarter. Company executives said Sprint Nextel will likely lose another 1.2 million post-paid customers in the first quarter of 2008. Post-paid customers are customers who pay a monthly bill. And they are often considered highly coveted in the wireless market.

Dan Hesse, president and CEO, Sprint Sprint Nextel

Meanwhile, Sprint rivals Verizon Wireless, AT&T and T-Mobile gained subscribers in the fourth quarter. In fact, T-Mobile, which has the smallest network footprint of the four major carriers and does not yet have a high-speed 3G network fully deployed, added 951,000 subscribers in the fourth quarter, the company said Thursday.

The main problems for Sprint right now are poor customer service and a severely damaged reputation, issues the company's management readily acknowledges.

"The level of customer defection on the iDEN network is unacceptable," Dan Hesse, Sprint's newly appointed CEO, said during the conference call with analysts and investors. "We need to rebuild the Sprint brand. And the most important way to do that is delivering a good customer experience. We have not done this, but improving that experience is job one."

Despite Hesse's assurances that the company is committed to fixing its problems, he acknowledged that it will take several quarters after changes have been implemented before they are reflected in the market. And he admitted that the issues facing the company in the coming year are "more challenging than I had expected."

"We haven't provided the right customer experience," he said. "But financial performance won't improve overnight."

The first priority for Sprint is reducing the churn rate--the rate at which customers leave the service--Hesse said. Doing this will require the company to not only invest in improving customer service, but will also require the company to simplify its business practices.

For example, he said, by simplifying pricing customers will have a better sense of what they are buying. And it will also help the company's sales representatives do a better job of selling and servicing those customers. Ultimately this should lead to more customer satisfaction and fewer calls to customer support.

A two-network strategy
Moving forward, Hesse emphasized that keeping current customers on the Sprint Nextel network is the priority. As part of this effort, Sprint is changing course slightly in how it plans to handle migrating customers from the old Nextel network, which uses the iDEN technology, to Sprint's CDMA network.

Previously, the company had been trying to move customers away from iDEN, but Hesse seems to be embracing that technology and network.

"Each network has unique strengths," he said. "And having two platforms is better than having one."

He said the company plans to use the capacity and resources of its existing iDEN network more efficiently. And it plans to increase the synergies between the two networks, including sharing more cell sites, creating rate plans that allow customers to choose either iDEN or CDMA services based on the criterion that is most meaningful to them, whether that's network coverage or network speed. And the company plans to roll out its QChat service, which allows users to use push to talk on the Sprint's CDMA-based 3G network as well as on the iDEN network, in 20 markets in 2008.

"It is the right decision from a short-term and long-term financial perspective to continue to maintain both networks and both platforms and to find synergies between platforms," Hesse said.

Hesse also said that the company needs to improve its brand image by not only improving its customer support and service, but also by emphasizing innovative services. A big part of this is emphasizing Sprint's data services. Hesse announced during the call that Sprint will launch a $99.99 plan that includes unlimited voice as well as unlimited data services and some premium services. The point of this, he said, was not to match its competitors on price, but to give customers a simpler plan centered around data services.

About Xohm
Even though Hesse emphasized the company's need to focus on its core business, he indicated that Sprint must also look forward to the next generation of technology. And he indicated that Sprint is moving forward with its WiMax network, called Xohm. Previously, there had been some speculation that Sprint might abandon its WiMax efforts.

"Leave no doubt that the first priority is our core business," he said. "But Sprint has an enormous asset in the 100Mhz of spectrum (that is being used to build Xohm), and we have a three-year head start with Xohm."

While Hesse said that he sees Xohm as a strategic asset, he was not willing to give further details about any deals or arrangements the company might be negotiating with Clearwire. Last summer the companies announced they'd be working together to build a nationwide network. And in November they terminated their agreement. But each company has said separately that is talking to other about ways to work together. Rumors have floated around for the past month that Sprint might spin off Xohm and combine it with Clearwire.

Hesse said he could not comment on any press reports or rumors. He said he'd provide more information on the WiMax network during the first-quarter conference call.

Hesse, who took over the CEO job in December, has also already made some moves to cut costs. In the two months he has been on the job, he has cut 4,000 jobs and eliminated 125 Sprint retail stores. He also consolidated the company's headquarters in Overland Park, Kansas, moving executives from Nextel's historic headquarters in Reston, Va. He also booted three top executives--the chief financial officer, the chief marketing officer, and the president of sales and distribution.

During the question-and-answer portion of the conference call, one analyst said that he was pleased with Hesse's actions, stating, "This is exactly what we had been looking for from you."

Indeed, Sprint seems to have a good plan in place to get itself back on track. The big question now is whether or not the company will be able to execute on those plans. And it remains to be seen how willing its former customers will be to forget the past and go back to Sprint. With cell phone penetration in the U.S. over 85 percent, it's going to be more difficult even for the best wireless operators to add loads of new customers.