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Is Sprint getting cold feet about Pivot and Xohm?

As another bad quarter bites

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Comment Sprint Nextel announced another disastrous quarter, its problems only highlighted by the strength of Verizon and AT&T, and appears to be in danger of sacrificing its only routes out of its "also-ran" rut, as a peace offering to understandably angry but short termist investors.

The carrier is pulling back on Pivot, the important joint venture with four major cablecos that gives it a shot at powering a converged operation; and is once again weighing up the options for its Xohm WiMAX division, with a deeper relationship with Clearwire and possible total spin-off two possibilities.

Sprint is suffering badly from a poorly executed merger, and the huge mistake of letting its balance of revenues slide so far from high margin, low churn offerings (notably in its mishandling of how Nextel customers were handled), to lower value services and customers in the prepaid sector.

CEO Gary Forsee rightly took the fall for his operational gaffes, but the danger for Sprint is that, in getting rid of a poor operational CEO, it will also lose the vision that enabled Forsee to turn the company around once before, pre-merger with Nextel.

Much of that was achieved by adopting a new and, at the time, radical business, which was the strong move into supporting MVNOs. This rescued Sprint from a slump and put it back on the US telecoms map, along with some other good moves like spinning off the Embarq local lines unit.

Now that times are hard again, there is only way for Sprint Nextel to avoid being stuck forever as a poor third behind AT&T and Verizon, increasingly losing value and market weight, and probably becoming an acquisition target down the track.

That is to repeat the Forsee trick of adopting a radical new plan that takes Sprint into a shiny market ahead of its rivals, and in fact, before his departure, he had come up with two – Pivot and Xohm.

It is also vital that these are twinned with a strong operational head, as Forsee had before well regarded Sprint COO Len Lauer fell on his sword after the first sets of poor post-merger financials. The failure to replace Lauer was disastrous, and the board of Sprint Nextel is now looking increasingly feeble on the question of company leadership, with interim CEO Paul Saleh ineffectual and very restricted in his freedom to move, and still no sign of a COO despite 15 months of searching (see Wireless Watch August 28 2006).

This is just one factor behind its latest disappointments, and the fact that the company is warning of an even worse fourth quarter. Third quarter profit fell 77 per cent year-on-year to $64m, on revenue down 4.2 per cent to $10.04bn. The operator admitted it still needed to fix customer service problems, and that it had lost 337,000 postpaid, high value monthly subscribers as well as even more prepaid customers – and that churn would be worse in Q4. By contrast, AT&T added two million net new subscribers in the quarter, while Verizon Wireless gained 1.6 million.

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Next page: Pivot

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