Hesse Plots a Big Win with Sprint's 4G Debut

Sprint Nextel Chief Executive Officer Dan Hesse might be the most recognizable head of any wireless company in the world. Since late 2007, Hesse has been the face of Sprint (S) as he lauds the third-largest U.S. carrier's virtues in TV and radio ads.

When it comes to phones, Sprint has struggled to find one that can deliver the recognition its chief executive has achieved. Although the company has recorded strong sales of Palm's (PALM) Pre and some Samsung models, none has become a must-have gadget the way Apple's (AAPL) iPhone, exclusive to AT&T (T), or Verizon Wireless' Droid smartphones have done.

Now Sprint is counting on the anticipated HTC Evo 4G to spur interest in its brand. In an interview with Businessweek.com, Hesse says the Evo—which went on sale June 4 and is the first phone to come out in the U.S. based on a next-generation high-speed wireless technology—could be just the device to bring high-paying customers back into its fold.

Sprint has suffered two years of dwindling subscriber growth and is working to improve what has been regarded as poor customer service. Sprint in the past three years has lost 9.4 million "postpaid" wireless subscribers who sign up for monthly service contracts. The company lost 578,000 postpaid customers in the first quarter.

Managers must account for complaints

"It took me a long time to decide to come over and do this job," says Hesse, who joined Sprint in 2007 from communications company Embarq (now CenturyLink), and who spent 23 years at AT&T. "At the time, it was in a very difficult place. We have moved the needle a lot."

Sprint has stanched a tide of defections to larger rivals in recent months, offering simplified rate plans and helping customers set up their phones. The company has also slowed its subscriber loss rate by improving customer satisfaction, even after closing 49 call centers to cut costs. Shortly after Hesse took the top job, he pared the number of rate plans Sprint offered by 85 percent and made managers more accountable for reducing customer complaints.

"Our costs were very high because we were answering far more calls than our competitors were from customers who weren't happy," Hesse says. Improving customer service "was an opportunity for the ultimate win-win where customers don't want to call us—and we don't want them to call us—because it costs us money," he says.

Sprint has reported losses in its last 10 quarters. Shares closed on June 4 down 17¢, or 3.4 percent, at 4.78. (The stock reached its 52-week high of 5.78 on June 16, 2009.)

4G, where Clearwire's network is up

Steve Clement, a research analyst at Pacific Crest Securities with a "hold" rating on Sprint, said in a June 3 research note that Sprint is "making most of the right moves to stabilize its revenue and earnings. However, given slowing growth and intense competition in the wireless industry, staying on a sustainable path to stabilization could be challenging," Clement said.

The Evo, which costs $199.99 with a two-year Sprint contract, can handle so-called "4G" fast-data connections in those U.S. markets where partner Clearwire (CLWR)—in which Sprint holds a majority stake—has built out its growing network. The 4G capability can speed downloads and let users watch live video or movies, as well as play graphically intensive video games. (The Evo functions on 3G networking technology when 4G isn't available.)

Evo will go toe-to-toe with Apple, which is expected to announce a new version of the iPhone on June 7. "There's no question that the Apple brand is powerful," Hesse says. The Evo's ability to switch to 4G to will be a strong selling point, he says. "That will make it a very differentiating experience for the customer."

The EVO could boost Sprint's results and cash flow. FBR Capital Markets (FBCM) analyst David Dixon, who has an "outperform" rating on Sprint stock, said in a June 3 research note that Evo online preorders from retailers are the highest on record for any Sprint phone, at nearly 1.2 million consumers.

leading in customer satisfaction

Smartphones generally demand a higher monthly tab than other devices; Evo customers would have to pay an additional $40 monthly to use such features as 4G data plans and the ability to turn the phone into a mobile hotspot, capable of delivering Internet connections to eight additional devices.

Even before the Evo launch, Hesse had shown progress reviving a company that many investors had largely written off. Postpaid customers in the first quarter generated about $55 per user for Sprint, more than twice the average per-user revenue that prepaid subscribers contributed, according to data compiled by Bloomberg.

Customer service is improving, too. Sprint recorded the highest score in the University of Michigan's quarterly American Customer Satisfaction Index released on May 18. Two years ago, Sprint won the lowest-ever score for wireless companies. "We've really worked on simplifying the customer experience," Hesse says.

Sprint would also like to entice Apple and other gadgetmakers to create hit devices for its network, Hesse says. "Tablets, the Amazon (AMZN) Kindle, and meters for smart grids: The more devices we can get and sell, the merrier," he says.