Oct. 8 (Bloomberg) -- Sprint Nextel Corp., facing mounting pressure from investors, ousted Chief Executive Officer Gary Forsee after he failed to stem customer defections to Verizon Wireless and AT&T Inc.

Forsee will leave immediately, Sprint said today in a statement. Chief Financial Officer Paul Saleh will run the company on an interim basis until Sprint, the third-largest U.S. wireless carrier, finds a permanent replacement.

After two years wrestling with the $36 billion purchase of Nextel Communications Inc., Forsee lost investor support as monthly contract customers fled. He had a tougher time than analysts predicted stitching Reston, Virginia-based Sprint's network together with Nextel's, and new advertisements failed to attract subscribers.

``The buck has to stop somewhere,'' said Michael Nelson, an analyst at Stanford Group Co. in New York, who rates the shares ``hold'' and doesn't own any. ``The stock has significantly underperformed the market and its peers.''

Sprint said today that it lost about 337,000 contract subscribers in the third quarter. Operating income and revenue for 2007 will be ``slightly'' less than its forecast. The company had previously predicted $11 billion to $11.5 billion in operating income and $41 billion to $42 billion in sales.

Shares Gain

Nelson estimated that Sprint would lose 300,000 contract subscribers. The company will report full earnings on Nov. 1.

Sprint shares rose as much as $1, or 5.4 percent, to $19.50 in extended trading. They earlier fell 51 cents to $18.50 at 4 p.m. in New York Stock Exchange composite trading. The stock has fallen 2.1 percent this year, compared with a 17 percent gain for AT&T and a 21 percent jump for Verizon Communications Inc.

``The decision to seek a new CEO was based on the board's belief that it is the right time to put in place new leadership to move the company forward,'' Sprint said in the statement, citing board member Irvine Hockaday.

Forsee, 57, also stepped down as Sprint's chairman and president. Board member James Hance will become acting non- executive chairman. Sprint said it will focus on looking for CEO candidates outside the company.

Forsee reorganized the company and fired workers after he joined Sprint in 2003, helping revive sales the following year. He embarked on a strategy to build the wireless business with the Nextel purchase, adding push-to-talk subscribers.

Customer Gripes

Nextel customers have griped about poor reception and dropped calls, and Sprint still has to combine two billing systems, a process that may confuse subscribers who receive new bills, Forsee said last month.

Forsee presided over a 95 percent drop in profit in the second quarter because the company was still paying costs from the Nextel purchase and firing workers to trim expenses after customer defections. Competitors lured away subscribers with handsets such as Apple Inc.'s iPhone.

Activist investor Ralph Whitworth, whose Relational Investors LLC owns about 1.9 percent of Sprint's shares, said he has ``lost confidence'' in Forsee, the Wall Street Journal reported last week. Sprint should consider selling its long- distance business and fiber-optic network, he told the newspaper.

A new CEO ``would be a catalyst for change,'' John Krause, an analyst at Thrivent Financial for Lutherans in Appleton, Wisconsin, said in an interview last week. The firm manages about $68 billion including Sprint shares.

Finance Chief

Saleh, 50, has been CFO since the merger of Sprint and Nextel in 2005. He joined Nextel as finance chief in 2001, after serving as CFO of Walt Disney International from 1997 to 2001.

Sprint added 16,000 users to long-term subscriptions in the second quarter, its first increase in a year. San Antonio-based AT&T, the largest wireless company, signed up more than 900,000 users to contracts, while Verizon Wireless, the second biggest, added 1.5 million. Verizon Wireless is co-owned by New York- based Verizon and Vodafone Group Plc.

Sprint started a new advertising campaign in June after its previous ads, which used the slogan ``Power Up,'' failed to win over customers. Forsee replaced Sprint's top marketing executive and hired a new agency to attract customers.

``The company's operating metrics did not live up to the market's expectations,'' said Dennis Saputo, an analyst at Moody's Investors Service Inc. in New York. The new CEO needs to focus on contract subscribers, he said. ``That is clearly going to have to be any new CEO's No. 1 priority.''

To contact the reporters on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net; Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: October 8, 2007 18:57 EDT