Sprint CEO aims for winning strategy

Dan Hesse, Sprint Nextel's s new CEO, is preparing for war.

His arsenal is packed with "nukes" — Hesse-speak for anything that has the potential to disrupt the status quo in wireless. One possibility under consideration: flat-rate pricing for unlimited voice calls.

Such a plan, if offered, could shake up the U.S. wireless industry, which has long offered "buckets" of minutes for a set price.

Hesse says he's made no final decision about unlimited calling, but he also makes it clear that he's going to do what it takes to differentiate Sprint from AT&T t and Verizon Wireless vz. His goal: drive customer sales through the roof.

"If we can't be different, we can't win," he says flatly.

For Sprint, "winning" is a relative term. After a string of dismal quarters, Wall Street would be happy if Hesse could just stop Sprint's bleeding. In the fourth quarter, historically the strongest for cellphone carriers, Sprint lost more than 800,000 customers. Sprint currently has about 54 million customers, putting it in the No. 3 spot behind AT&T (70 million) and Verizon (66 million).

AT&T and Verizon, meantime, continue to add more than 2 million new customers each quarter. Many are coming from Sprint's customer base, which is dwindling along with investor confidence.

Sprint's troubles were in full bloom long before Hesse arrived on Dec. 18. After Sprint acquired Nextel, the combined company struggled with operational problems. As problems escalated, Sprint's share price plunged. Shares are down more than 60% since the $35 billion merger closed in August 2005.

The former CEO, Gary Forsee, was shown the door last fall. It remains to be seen if Hesse will fare any better.

John Hodulik, a telecom analyst for UBS, says it will take a lot of hard work to turn Sprint around. One of the biggest challenges: persuading a wary public to come back to Sprint, whose image and brand have been battered over the past year.

"They have to give people a reason to pick Sprint … and stay with them," Hodulik says.

Incremental steps won't stop the hemorrhaging, Hodulik says. "They need to make some fairly drastic changes." Jan Dawson, a telecom analyst at Ovum, agrees. "Sprint can be saved, but they're going to have to be pretty aggressive about the steps they take to fix it."

You'll get no argument from Hesse. Shortly after taking the helm, he set up a war room in an adjoining office. White boards were installed along with blackout shades, allowing Hesse to freely jot down his thoughts but still keep them secret, if necessary. Hesse has the only electronic key to the room, which is off-limits to everybody — including the cleaning crew — unless Hesse is present.

Giving a reporter a rare tour, Hesse draws back the curtains far enough to reveal a few category headers: "Nukes," "Strategy" and "People" are among them.

Fallout from the brainstorming bunker is coming quickly. Hesse recently announced plans to slash 4,000 jobs and shut hundreds of underperforming retail outlets and other distribution points. Hesse also removed three top executives, including the former chief financial officer, Paul Saleh, who until recently was acting CEO.

Hesse says he'll do what it takes to protect and promote Sprint's unique assets, even if it means upsetting the status quo.

"We're looking at all sorts of things that could be disruptive to the (wireless) industry," he says matter-of-factly. Plus, he says, "I like to be on the offensive rather than the defensive."

A long history

Hesse has a long history of going on the offensive. During his 23 years at AT&T, he developed a reputation for pushing boundaries. As the CEO of AT&T Wireless — the original, before it was acquired by Cingular, now part of the new AT&T — Hesse revolutionized the wireless business by introducing Digital One Rate. The plan offered consumers 600 minutes of anywhere calling for a flat fee of $90 a month. Rivals were outraged: Digital One effectively erased roaming and long-distance charges, which at the time were big moneymakers for cellphone carriers.

As customers began bolting to AT&T, however, carriers had little choice but to follow Hesse's lead. With that, the notion of wireless as a national service was born.

Making lemonade out of lemons is one of Hesse's specialties. Nowhere is that more apparent, perhaps, than with his plans for the Nextel network.

Under Forsee, Nextel's network faltered badly. Performance problems were a function, primarily, of dwindling capacity. Trying to fix the problem, Sprint started moving Nextel customers to Sprint's network, with the goal of retiring Nextel's network over time. A complicating factor was the incompatible technologies of the two networks. Sprint's network is based on CDMA technology; Nextel's IDEN network is based on another standard.

A lot of Nextel customers were unhappy with this solution, and left. The exodus continues.

The lemonade part of this story? So many people have left "that we have spare capacity that we can use" on the Nextel network, Hesse says.

Before the merger, he notes, Nextel claimed deep customer loyalty and the highest revenue-per-subscriber in the wireless business. Hesse thinks he can regain Nextel's glory — and customer loyalty in the process.

How? By rolling out a bigger, even better generation of Push-to-Talk services that will do much more than talk. "Think of it as Push-to-X," Hesse says, ticking off a long list of applications such as e-mail, location services and picture-sharing that can be enabled by Nextel's technology.

This spring, Sprint plans to introduce a family of high-performance Push-to-Talk services that will work flawlessly, he says, on either network. Push-to-X products and services aren't far behind. By doubling down on Push-to-Talk, "We'll get two bites at the apple," Hesse says, adding, "This is a distinct opportunity for us."

Another opportunity, he says, is WiMax. Under Forsee, Sprint sketched out an aggressive plan for investing in WiMax, a next-generation wireless technology that takes the idea of Wi-Fi — small Internet hot spots — and beams it nationally. Sprint, working with Clearwire, planned to spend $5 billion to construct a national WiMax network, with the goal of turning the USA into one, big hot spot.

After Forsee left, some investors pressed Sprint to table WiMax plans, arguing the company needed to focus on its core wireless business. Hesse says no final decision has been reached on WiMax, "But I see no reason to abandon it and don't plan to."

To all those critics who say WiMax will never pan out, Hesse just smiles. "If you looked at the business case for the (Apple) iPod, you never would have done that, either," he says.

Hesse's point: Sometimes leadership is as much about vision as it is about business plans. He gives Foresee a lot of credit for being willing to back WiMax. "It could turn out to be a stroke of genius."

Takeover bait?

Sprint's battered stock price has fueled talk that the company could become takeover bait. Hesse says he's not a seller but would consider any serious offer that included a "significant" premium. "If somebody came to us with a really big check, we'd listen. But it would have to be a really big price."

One thing he won't be doing, however, is selling off parts of the business, such as long-distance, just to get a pop in the stock. Going that route, he says, would be a "huge distraction" for management. Hesse also thinks short-term fixes like that are "moronic. … Why don't you just sell your heart or your brain? It just doesn't work."

Another thing that doesn't work: having two headquarters. Sprint Nextel has its operational headquarters in Kansas City and its executive headquarters in Reston, Va. Kansas City is Sprint's longtime home; Reston was Nextel's. Hesse thinks the two-city approach was a mistake, saying it sent the wrong message to employees and compounded the company's cultural clashes.

The Sprint chief says those days are just about over. "There will be one headquarters," he says.

But which one? Hesse hasn't made a final decision, but common sense would suggest Kansas City. About 14,000 Sprint employees live in the Kansas City area; Sprint has a sprawling, campus-style office in Overland Park, about 45 minutes south of the city.

The cultural divide could be tougher to fix.

Hesse has a novel approach to that, as well. He recently polled all 60,000 employees on 17 "cultural imperatives," behaviors that will define Sprint's corporate culture. The poll, via e-mail, asked employees to rank the importance of a number of factors, including accountability, customer focus and innovation. With 48 hours to respond, about 30,000 did.

Hesse says he's using those responses to help define Sprint's culture. "After that," he says pointedly, "I don't ever want to hear about two cultures again."

Hesse, meantime, keeps jotting down notes on those white boards, looking for ways to buy time and differentiate Sprint from the pack. Customer service is a big part of his thinking. The Sprint chief says he starts every meeting with a discussion of ways to improve the customer experience. Branding — specifically, clarifying the now-muddled Sprint and Nextel brands in the marketplace — is another topic that consumes him.

There's a common theme that runs to the heart of every discussion, however. Hesse says he finds himself asking the same question, essentially, over and over: "What can we do to make ourselves different" in the marketplace?

For Hesse, that's the beginning, the middle and the end of every strategy session. To his way of thinking, that's what will ultimately save Sprint, which remains, bruises and all, one of the grand names in global communications.

"There are no quick fixes here, no magic bullet," Hesse says, reflecting on the challenges — and unique opportunities — ahead. "But if we do the right things, I really do think there is a terrific opportunity here."