At Sprint, Full Speed Ahead
When Gary Forsee was hired as chief executive of Sprint (S) in 2003, he faced a cloudy future. The telecom company was distant third behind AT&T (T) and MCI Communications in long distance, and trailed far behind Verizon Wireless and Cingular Wireless in cellular service. He also inherited a company in turmoil after the sudden departure of long-time CEO William T. Esrey, who was forced out amid concerns over his participation in suspect tax shelters.
Forsee brought along his own controversy. His previous employer, BellSouth (BLS), sued Forsee when he decided to go to Sprint, arguing that the move violated his noncompete agreement. In the end, Foresee was able to take the chief executive post, but only after agreeing to certain restrictions. Chief among them: a yearlong fetter on corporate dealmaking by the new CEO.
The view from the top of Sprint is a lot clearer today. The contract dispute is far behind Forsee. AT&T and MCI have both been acquired. (SBC Communications took over AT&T and took the name of its new parent.) And as soon as the ban on mergers and acquisitions was lifted, Forsee began negotiations to buy Nextel Communications, the most profitable U.S. wireless carrier, for $35 billion.
Sprint, which closed the Nextel in August, 2005, now has 51 million subscribers, vs. Verizon Wireless' 53 million and Cingular's 56 million. Sprint's stock price has roughly doubled since Forsee's arrival, to just shy of $25 a share. Its market cap has hit $74 billion, while the new AT&T and Verizon are at $101 billion and $97 billion respectively.
On May 5, Forsee, Sprint Chief Operating Officer Len Lauer, and several other top Sprint execs stopped into BusinessWeek's offices. Forsee makes clear his work at Sprint is far from over. He's spinning off Sprint's local phone business, renamed Embarq, in a couple of weeks. He plans to keep spending about $6 billion a year on capital investments, and Sprint's executive team is wrestling with how to better market new wireless services, including music and television. What follows are edited remarks from Forsee and Lauer:
On the rate of change in the communications industry:
Forsee: I've been in the business for 34 years and you think you've seen it all, that they'll be a steady state. Frankly, what's happening because of technology, because of customer demands, and because of the pace of business, we're seeing the pace accelerate.
Convergence is real. It's happening. Whether it's cable offering telephone service in the home or something else. In the past three or four years, it's becoming hyper in that regard.
On the changes at Sprint since he arrived:
Forsee: In 2003, we had three lines of business: local, long distance, and then wireless. We had three operating divisions, but they weren't operating under this banner of convergence. So we could continue or we could try to change the game. We took down the banner of the three operating groups and changed to a business group and a consumer group. That helped our market cap go from about $17 billion to $34 billion.
Our repositioning started in that three-year period and culminated in our acquisition of Nextel, which had a similar vision.
On how Sprint will position itself in telecom:
Forsee: Our view of the world is that mobility is going to be the key. Not just for voice, but for data too. We have suggested in the marketplace that we're not a traditional telecom company; we're a data services company.
We're trying to move as quickly as we can. We've had a lot on our plate. We know that we have a limited window of time.
On whether Sprint will be able to trim capital expenditures soon:
Forsee: We're committed for the next several years to a $6 billion clip. That's to integrate the Sprint network and the Nextel network, so that it will be the best with respect to quality, to capacity, and to speed. It's really hard to predict past 2008. We're on a forced march to integrate the two networks.
On whether advertising will become a significant part of Sprint's revenues:
Forsee: It's an opportunity (see BW Online, 3/24/06, "Now Playing On Your Cell Phone").
Lauer: There are certainly privacy issues that need to be worked out. But sure, there could be an advertiser who wants to reach in Manhattan, 22- to 25-year women [with advertising on their phones]. We've talked with [ad] agencies here and they're interested.
On whether wireless companies will face Net neutrality issues similar to those that wireline companies face now:
Lauer: I think we're going to be okay on Net neutrality. We give you open access to the whole Internet. I think the only problem would be if someone told us we had to open up the home deck. We choose [which companies show up on a phones home page.] Verizon chooses who's going to be on their home page.
On which companies Sprint most worries about:
Forsee: The two names across the street [indicating Verizon and AT&T]. You always have to look out for the disruptions, [such as the merger of] eBay (EBAY) and Skype. It was kind of tough to see that one coming. But the ones we really focus on are those two [Verizon and AT&T].
On whether Sprint is substantially different from AT&T and Verizon:
Forsee: There probably is some DNA at work. The core of Verizon [comes from the old Ma Bell.] We've been the attacker. We've had to be the innovator. When you get out of bed in the morning, we have a different DNA.
Lauer: There's an easy analogy. We're on offense. They're on defense.