Sprint to the Head of the Pack
Pop quiz: Which major U.S. telecom company is going to post the fastest growth this year? True, it's a dismal bunch. The long-distance giants AT&T (T) and MCI (MCIP) are melting like ice cream in a microwave. The Bells SBC Communications (SBC ), Verizon Communications (VZ ), Qwest Communications International (Q ), and BellSouth (BLS ) are looking at a year of stagnating revenues or meager growth.
No, the telecom company with the most juice these days is a former also-ran -- Sprint (FON ). The Overland Park, Kan., company is pegged to boost revenues 6.5% this year, to $27.9 billion, according to Stanley. "It's a real mover," says analyst Viktor Shvets of Deutsche Bank Securities.
That Sprint is outshining its peers is a dramatic change in fortune. For years, the company was an afterthought in telecom: The underachieving Midwestern upstart, perennially chasing AT&T and MCI. When the company came to mind, it was often as an acquisition target suited to round out another's portfolio.
But even as Sprint's long-distance rivals have crashed, CEO Gary D. Forsee has deftly guided his carrier through the wreckage. By focusing on wireless services and making a risky bet on leasing its networks to rivals, Sprint has become one of the most powerful players in the troubled telecom business. "We're taking action," says Forsee. "We're making bold moves that will keep us in position to be successful."
Now, Sprint has the muscle to do what would have been unthinkable a few years ago: Initiate a big-time acquisition. With a market cap of $28 billion, Sprint could make a run at almost any phone company in the States, except the biggest Bells. It could easily roll up the long-distance business by buying AT&T or MCI, worth $12 billion and $5 billion.
That's unlikely given the deep troubles at both companies, but a deal to bolster its wireless business is a distinct possibility. Alltel (AT ) in Little Rock would add 8 million wireless customers to Sprint's existing base of 17 million. Nextel Communications (NXTL ) would add 14 million subscribers, catapulting Sprint into the same league as giants Verizon Wireless and Cingular Wireless. "That would set them apart and make [the industry] a good three-horse race," says Michael J. Price, senior managing director at Evercore Partners Inc., a New York investment and banking consultant. Although Forsee wouldn't rule the possibility out, he says Sprint doesn't need to make an acquisition.
How Sprint hoisted itself into position to run with the best is a lesson in foresight and discipline. The company made a huge bet on wireless in the mid-1990s, bidding aggressively on government licenses and then investing billions in its network. The result: Wireless revenues have grown so rapidly that they now account for more than half the company's sales.
Forsee, a longtime Sprint exec who rejoined the company last year after a four-year stint at BellSouth, is building on that foundation. The 54-year-old is striking deals to let other companies lease Sprint's wireless network and then market their own services. Already, Virgin Mobile is buying wholesale service from Sprint and has targeted the youth market to become the fastest-growing wireless company in the U.S. Qwest resells Sprint service. And longtime rival AT&T will begin to use Sprint's wireless network after Cingular closes its deal to buy AT&T Wireless this fall.
Those partnerships brought in 300,000 subscribers in the second quarter, nearly two-thirds of its total net additions. "To be successful, we have to be sure that we are taking full advantage of our assets," Forsee says.
In perhaps its most unconventional move, Sprint is teaming up with cable operators to deliver voice service to residential customers. Sprint already has a local phone business with 8 million lines in small cities stretching from Lady Lake, Fla., to Hood River, Ore. But that's only 5% of U.S. customers. To reach the other 95%, Sprint is riding shotgun with cable players such as Time Warner (TWX ) and Mediacom Communications (MCCC ) as they begin to deliver phone service over their cable pipes. Time Warner provides the link to the home and Sprint the expertise to enable customized voice mail, call forwarding, and operator assistance. Sprint gets a flat fee from every customer the cable companies sign up.
The real prize may come from future services Sprint hopes to offer through the cable partnerships. The company plans to persuade these cable customers to buy Sprint's cutting-edge wireless services. That would include letting customers preview movies on their wireless video phone on the commute home and then place an order to download the movie so it's waiting as they walk in the door. That's a nifty vision of the future. But is it realistic? Even Sprint COO Len J. Lauer concedes: "We don't have the cable companies' full agreement. This is our concept, what we'd like to do."
Take it as a sign of the new Sprint. Lauer and Forsee understand that the winners in telecom won't be those standing idly by. Whether it's launching services -- or perhaps making an acquisition -- the onetime laggard is now in position to lead the way.
By Roger O. Crockett in Overland Park, Kan.