On the Line with Sprint PCS's President

Charles Levine talks about the wireless industry's fortunes, in terms of growth, technology, and consolidation

During the past five years, no wireless carrier has grown as fast as Sprint PCS (PCS ). The Kansas City (Mo.) company has led the industry in subscriber growth for 14 consecutive quarters, adding more than 1.1 million new subscribers in the fourth quarter of 2001. With more than 13.5 million subscribers, Sprint PCS is the fourth-largest carrier in the U.S., behind Verizon Wireless (VZ ), Cingular Wireless, and AT&T Wireless (AWE ).

Even so, Sprint's future is cloudy. Despite its speedy growth, it's losing money -- some $1.3 billion last year -- and its debt is mounting. The result: Investors have bailed. From its peak in 2000, Sprint PCS's stock has plunged 85%, to about $10.50 a share (see BW Online, 3/13/02, "Why Sprint PCS Could Pick Up Speed").

The company's nonplussed president, Charles E. Levine, recently talked with BusinessWeek's Roger O. Crockett about the state of the wireless industry and Sprint's plans to thrive in it (see BW Special Report, 4/1/02, "What Ails Wireless?"). Edited excerpts follow:

Q: The wireless industry seems to be really struggling lately. Subscriber growth is down, average revenue per user is down, and investors are pummeling the stocks. Was this all due to a poor economy, or are more fundamental issues harming wireless?


I think most of it was due to the economy, which seems to be picking up now, and I think most of the industry is seeing that. The improved economy has helped resolve some of the biggest issues that we have.

We revised our numbers for industrywide subscriber growth to 17 million, from 22 million. Based on very early results, I feel comfortable those numbers are realistic. In fact, I think that may be a little light.

Q: What is driving that added growth? Will it be new data services?


We are continually providing customers with new sets of services that meet their needs and desires. Customers still have a need for clear-voice communications. But customers also are finding a need for data as well as voice. With the introduction of 3G [third-generation data service capable of handling such things as e-mail and photo attachments], we will offer greater speeds and the applications that businesses and consumers need.

Q: Are you still on target to launch your new data service in June across the entire nation?


We expect to launch nationwide this summer. [Sprint, like most major wireless carriers, is introducing technology this year that will let customers connect to the Internet -- either directly from mobile phones or from laptops connected to mobile phones -- at roughly 60 kilobits per second, about the same as a traditional modem.]

Q: Explain why you're waiting to launch when some of your competitors are launching ahead of you in select markets.


We will reach a population base of 247 million people, all of Sprint's nationwide coverage area. Verizon, on the other hand, is introducing its service in 20% of the country. Its assumption is that you want it where you live, but where you live is also where you already have access to broadband service.

When you really need it is when you're not at home. You need it in hotels when you are trying to dial up and get your e-mail. Hotels are now charging for 800-number calls. It will be less expensive and faster to use [a Sprint wireless data] card in your laptop. That is a compelling application for anybody that relies on data in his business or life.

Q: Not many people use wireless data right now. How long do you think it will take for this faster service to bring you any substantial revenue?


It is going to be a gradual takeoff. Our job is to get it in front of customers. It will have some impact this year and more impact next year. Remember that in 1999, when we introduced our first wireless Web applications in the fall, we had a phenomenal Christmas season. It wasn't because customers said they wanted this wireless Web thing. But they knew that when they wanted to try it, it was loaded on their phone.

We think we'll see the same thing with our new [data] service. Not everyone will beat down the door for it, but they will understand that it has value. When they want to get to it, they can.

Q: How will you price the service?


We're wrestling with that. How do we make pricing clear and simple to customers? There are two ways to charge: By the minute and by the byte. It's going to be some combination.

Q: Most industry observers feel there are too many wireless players and that consolidation is inevitable. How do you anticipate consolidation will play out?


We're already seeing some consolidation. AT&T is buying some of its affiliates. We've seen some of our affiliates buy each other. And with the elimination of wireless spectrum caps later this year, there's certainly the possibility of bigger players consolidating.

Q: Which big players would merge?


It makes the most sense for carriers to consolidate with others of like technology. You won't see a GSM player [like VoiceStream] acquiring a CDMA player [like Sprint PCS] or vice versa. [Cingular, AT&T, and VoiceStream all use the world's dominant wireless technology, global system for mobile communications, or GSM, while Sprint PCS and Verizon operate using code division multiple access, or CDMA.]

Q: Sprint PCS is a stock under the umbrella of Sprint Corp., the phone company. Does that make it difficult for another company to buy Sprint PCS?


A regional Bell phone company interested in Sprint PCS may be interested in Sprint's long-distance business, too. So that kind of transaction is possible. But for us to sell [the wireless unit] without the phone group? Well, it would have to be an extraordinary offer to decide to sell off Sprint PCS.

If someone offered enough money, it's certainly possible. If someone were to offer $1,000 a share, maybe. But not for $13 a share.

Q: In recent years, the practice of giving away phones for free might have attracted new users, but how do you feel about its impact on revenue and the industry's growth?


We've never played the game of giving away handsets. I would love to see the industry move away from the subsidized phone model. I don't think giving away handsets is the road to go down.

More and more of our customers are replacing phones. People who replace their [entry-level] phones are interested in new phones with color screens, bigger screens, and more functionality. Besides, if you give an [new] customer a penny phone and an existing customer a phone for $200, then the existing customer is going to tell you, "I'll go to another carrier." You give incentive for churn, which is not good for the industry.

Q: Sprint seems to have an affinity for Korean phone makers. Why?


We have focused on manufacturers that are willing to provide unique phones that customers say they want. Samsung, Kyocera, LG, and Sanyo are some of our best suppliers. The European players [Nokia and Ericsson] are providing handsets along a similar line to as many carriers as possible. That's commoditizing the phones. And that's why you have not seen us work heavily with manufacturers that we feel are not producing handsets with the unique features and functions.