Sprint: Yet Another Bad Decision 32 comments
December 04, 2007
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What is it going to take for these guys to get it right? Sprint (S)
rejected an offer by South Korea's SK Telecom and private-equity firm
Providence Equity Partners to invest $5 billion in the company and to
install NexTel's former Chairman, Tim Donahue, as chief executive
officer.
Mr. Donahue's group proposed a deal in a Nov. 10 letter to Sprint's board. The board didn't grant Mr. Donahue or the investors a meeting before declining the offer, these people said. It makes sense, with shares down 36% since early June and subscribers fleeing faster than the Saigon evacuation after Vietnam, why even consider an alternative or hear what they have to say?
Let's not forget that Mr. Donahue, who was CEO of Nextel, negotiated its sale to Sprint in 2004 for $35 billion and became chairman of the combined company after the merger closed in 2005. He stepped down late in 2006. The proposal said he would return as CEO and would bring in a full slate of executives to handle marketing and operations. Sprint's fortunes have decline precipitously since his departure. In short, this guy knows what he is doing. He took NexTel from a bit player to a major force. Maybe current management longs for those good 'ole days?
Some Sprint directors say Sprint bought a wireless carrier with a "creaky network that needed major upgrades and a user base susceptible to being lured by competitors." If that is so, why was NexTel adding subscribers by the bucket full at the time of the merger, and if the network issues are true, why pay $35 billion for it? NexTel users became "susceptible to being lured" only after being treated like an inconvenience by Sprint customer service reps.
The Donahue group said in the letter to the board that it would invest $5 billion or "potentially substantially more" in the form of securities convertible into equity after some period of time at a stock price 20% higher than Sprint's current price as well as a noncash dividend of 3% to 4% and said they were prepared to sign a definitive agreement with Sprint within 10 days. In short, they were putting their money where their mouth was.....
Activist investor Ralph Whitworth, who before former CEO Gary Forsee quit had threatened a proxy fight for board seats unless Sprint directors immediately dealt with the company's leadership issue, praised the Sprint board. "I don't think the CEO job ought to be up for auction," said Mr. Whitworth.
Mr. Whitworth's Relational Investors LLC owns just under 2% of Sprint's shares. "It's bad business to link minority investments with CEO selection decisions," he continued. "If I had been a board member, it would have been dead on arrival. The board did the right thing."
HYPOCRISY!! So, I guess it is ok to link boards seats to a minority investment Ralph? Am I the only one who caught that? Now, we should listen to Mr. Whitworth, after all he is the one who led the charge at Home Depot (HD) to get rid of then CEO Nardelli, sell supply and take on massive debt to fund an ill-conceived share buyback. How did that work out Ralph?
I feel bad for Sprint shareholders, it will be a long hard slog with these guys at the helm. The only way this makes any sense is if they are going to sell to Google (GOOG) soon, which given the news Google is officially bidding for wireless spectrum, is less likely every day.
Mr. Donahue's group proposed a deal in a Nov. 10 letter to Sprint's board. The board didn't grant Mr. Donahue or the investors a meeting before declining the offer, these people said. It makes sense, with shares down 36% since early June and subscribers fleeing faster than the Saigon evacuation after Vietnam, why even consider an alternative or hear what they have to say?
Let's not forget that Mr. Donahue, who was CEO of Nextel, negotiated its sale to Sprint in 2004 for $35 billion and became chairman of the combined company after the merger closed in 2005. He stepped down late in 2006. The proposal said he would return as CEO and would bring in a full slate of executives to handle marketing and operations. Sprint's fortunes have decline precipitously since his departure. In short, this guy knows what he is doing. He took NexTel from a bit player to a major force. Maybe current management longs for those good 'ole days?
Some Sprint directors say Sprint bought a wireless carrier with a "creaky network that needed major upgrades and a user base susceptible to being lured by competitors." If that is so, why was NexTel adding subscribers by the bucket full at the time of the merger, and if the network issues are true, why pay $35 billion for it? NexTel users became "susceptible to being lured" only after being treated like an inconvenience by Sprint customer service reps.
The Donahue group said in the letter to the board that it would invest $5 billion or "potentially substantially more" in the form of securities convertible into equity after some period of time at a stock price 20% higher than Sprint's current price as well as a noncash dividend of 3% to 4% and said they were prepared to sign a definitive agreement with Sprint within 10 days. In short, they were putting their money where their mouth was.....
Activist investor Ralph Whitworth, who before former CEO Gary Forsee quit had threatened a proxy fight for board seats unless Sprint directors immediately dealt with the company's leadership issue, praised the Sprint board. "I don't think the CEO job ought to be up for auction," said Mr. Whitworth.
Mr. Whitworth's Relational Investors LLC owns just under 2% of Sprint's shares. "It's bad business to link minority investments with CEO selection decisions," he continued. "If I had been a board member, it would have been dead on arrival. The board did the right thing."
HYPOCRISY!! So, I guess it is ok to link boards seats to a minority investment Ralph? Am I the only one who caught that? Now, we should listen to Mr. Whitworth, after all he is the one who led the charge at Home Depot (HD) to get rid of then CEO Nardelli, sell supply and take on massive debt to fund an ill-conceived share buyback. How did that work out Ralph?
I feel bad for Sprint shareholders, it will be a long hard slog with these guys at the helm. The only way this makes any sense is if they are going to sell to Google (GOOG) soon, which given the news Google is officially bidding for wireless spectrum, is less likely every day.
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This article has 32 comments:
Bravo for speaking out on the inability of Sprint Corp to see past the ends of their noses (mostly because they are buried in reports touting "red, yellow, green"). If they would take their noses out of those reports, they might be able to smell the burning rubber of tire tracks left behind by the countless subscribers who are fleeing, yes FLEEING, Sprint together with Nextel.
Your points are entirely valid - why would a major corporation like Sprint acquire (not merge with) a robust wireless carrier like Nextel in its heyday? There must have been something becoming about the Nextel Corporation that Donahue helmed. It couldn't have just been for the coveted Nextel Cup [LOL], but it may have been for the cohesive, high-energy team that Donahue assembled and managed. Nextel was a place were the smallest players, even those on the front lines, were treated with respect and valued for their contributions. A place where the customer could still speak with a Customer Service Representative who lived in this country, understood American economics and the value of a dollar (not to mention speak AND understand the English language).
In the early days after the “acquisition”, Sprint management trumped Nextel wisdom, energy and forward-motion at every turn. They never achieved salary parody between legacy Nextel and legacy Sprint managers on many levels. They lost an incredible number of hardworking people through their cold and impersonal management style. They were happier turning Nextel’s sales managers into Sprint operational managers. Reminds me of the “Borg”, “ . . . you will be assimilated . . .”
Internally, Nextel’s legacy employees and their beloved radio phones were treated as a “substandard”. Even now, 2 years post merger, you will still find representatives in the Sprint Corporate Retail stores who have refused to learn anything about how a Nextel phone functions or is activated. Nextel brought Sprint all the “redneck” consumers with their “walkie talkies” and trusting nature, as well as their hardworking lower-middle-class dollars, and Sprint’s chin hit the floor in astonishment. What the heck were they going to do to keep these people happy? Their solution: “The Powersource Phone” - a marriage of two networks that has been about as amicable and successful as the Sprint Nextel deal. The legacy Nextel customers HATE the hybrid devices and their 1900 MHZ frequency cellular service. Ask them and they will tell you it is a roaming piece of crap. They’d rather go back to their OLD devices on a network that is being held together by wishful thinking and fancy rhetoric.
Granted, Whitworth has a point about CEO positions NOT being given to the highest bidding investor (perhaps a bit of jealousy on his part), but it does make sense. Heads of companies that are publicly traded like Sprint should have representation at the highest level that will accomplish the goals of the corporation. Additionally, they should also make stockholders richer, or at least feeling comfortable about leaving their money in those stocks. Right now, Sprint has neither.
Donahue was a Wall Street Darling who many watched and joyfully listened to - he was like the E.F. Hutton of the cellular industry.
Sprint doesn't have much left to offer these days - the glorious performance of the past has given way to an image as laughable as derailed pop-star Brittany Spears . . . Sprint can't sing anymore, she's losing her children, alienating her fans, and still thinks that people want her. How delusional. Sprint Corporation should have grabbed that fat 5 billion – with Donahue attached – and used it to fix their network and image.
Lord knows, even Brittany would’ve.
look at this www.youtube.com/watch?...
St Theresa once said, "fish rots from the head". The betrayal was at the top - not the workers. With unselfish leadership, this could have worked. The "merger", seen as an acquisition by Sprint after the fact, was supposed to mesh the assets of Sprint with the management style of Nextel. That was clearly stated at the beginning. When this didn't happen, and the Nextel teams were treated with derision and contempt by Sprint people, things went sour. But had management stepped in and controlled this clash, and leveraged what Nextel had to offer, the results would be different today. Why didn't management recognize what Nextel people brought and why wasn't this advertised? And vice-versa? How could two camps possibly work together, knowing nothing about the good each brought? Instead jealousy, suspicion, contempt and passive-aggressive behavior became the norm.
Donahue was Chairman, not COO, not CEO. "Chairman" typically doesn't manage operational issues in a large company. When Donahue recognized the disasters occurring down below and started to get involved, he was way too late and his efforts were blocked. He threw up his hands and left early. Didn't want to be associated with ongoing failure. Don't blame Donahue for the chaos. When he tried to intervene, he was rebuffed violently. The violent emotions being expressed down in the ranks were even more vitriolic at the Board level. Why would Donahue stay for that?
The Nextel network worked until the merger. The Network started to fail after Sprint engineering sent the network into a death spiral. Sprint would not listen to the Nextel engineers on tuning the iDEN network. Sprint would not agree to Motorola's maintenance and support. Sprint refused to consider the pleas of the Nextel folks when Sprint decided to stop maintaining integral pieces of the cell towers, arguing that these pieces weren't necessary! Sprint CDMA engineers had no clue how to manage this different network, but shut down any appeals from the Nextel folks. The Nextel folks were let go, or left in disgust. Motorola's support dropped. So DUH, guess what happened.
Sprint's struggles with customer care really start with the poorly-designed product. The lowly care rep has no control over the complexities of how the systems work, or how confusing each disparate product is to figure out. Plus they are trained inadequately. Care organizations have high turnover anyway - its a frustrating, low-paid job with no perks, and little encouragement. Confusion on how to help an angry customer only exacerbates the pitiful situation into which the rep is put, and adds to the turnover problem. The complicated systems, quirky products, the Rube Goldberg gerbil-powered bubblegum links, passwords, commands, etc. would make anyone crazy trying to figure it out. Lay this on a high-school educated rep with no technical knowledge, poor training, and you have no customer support. To solve the customer care problem, I challenge a product person to walk through just one single Sprint product end-to-end with its attendant add-ons, support systems, call detail records, billing systems, voicemail etc. This would be an eye-opener to understand why a lowly rep can't help a customer turn on or off services and products.
The Nextel folk are bewildered by the figurehead Sprint VPs who don't understand the business, yet report to work. The rank and file Sprint employees are bewildered by the brashness of Nextel people who regularly speak to their Nextel VPs and Officers. At Sprint, the model appears to be that the company is run by the managers, not the Directors or the VPs. The managers do their own thing and work in isolated silos. The Nextel model is that everyone is involved, no silos, and get specific direction from Directors and VPs. The Nextel folk are bewildered by the lack of empowerment of the stock Sprint worker, and wonder why nobody asks questions or do running analyses.
Nextel folk are bewildered by the apparent contempt that Sprint managers have for their VPs and VPs for their managers. These two echelons never communicate with each other. The managers are running the company. These managers, who may have been managers for 20 years, know they will never be Director or VP. There appears to be a line that is not crossed. The VPs have plenty of letters following their titles, and degrees out the wazoo, but no concrete understanding of the cellphone business. Sort of like stuffed white shirts and a closed society that disdains using bad language or asking questions, the VPs are in the ubiquitous 'ivory tower', fed false information by their managers who know the VPs don't understand anything anyway. The VPs don't recognize that this information is bogus, because, like I said, the VPs don't understand enough to recognize good information from junk. There are bewildered knowledgeable Nextel VPs who are shocked when their Sprint employees repeatedly ignore direct orders. These employees are completely unused to informed VPs and ignoring them is acceptable behavior. Meanwhile, the managers do their thing, make the decisions, and run the business, lacking the cohesive oversight that a strong upper management offers in a typical company. But having lacked this kind of authority for years, the stock Sprint worker doesn't know that it is missing.
When layoffs occur at Sprint, the lazy VPs never get whacked ... why is this?
Is it my imagination or does Sprint get rid of the get-it-done workers? A few years ago, they got rid of the PCS folks, the shoot-from-the-hip; manage-by-the-seat-of-... beat-the-competition-to-the-door-guys. Then many competent workers left with Embarq's spinoff. Now the new idea being considered, is selling off the worthwhile WiMax. I don't understand this pattern of cutting off the arms and legs. Sprint used to have a lot more conscientious workers - it couldn't've gotten where it is today without this. But where are these folks now? It appears that remaining Sprint worker gets angry when asked to do work or to change their routine in some way. This is not the recipe for success.
Embarq took the funds generated by landline. Sprint is now a cellphone company. Cell phone companies survive on fast and imaginative analysis, empowered workers, fast work, the make-it-work and get-it-to-market approach. Unlike guaranteed income on the end of a landline phone bill, cell phone companies don't have the same kind of guaranteed cashflow. Cell phone companies really have to work for their paycheck. Mean, lean and fast. The masses and VPs at Sprint don't seem to recognize that this guaranteed funding and cashflow is no longer coming in. When Sprint comes out of its slumber, figures this out, and reacts accordingly, the numbers will rise.
But where has management been all this time?? When does the betrayal of Sprint stop?
Bring back Donahue. He took Nextel from the brink of bankruptcy to number five. He is a get-it-done guy who can make things happen for Sprint too. Many of us would follow him to hell and back.
Or they just quit their job and walk away then try to come back. I see your bias here.
Does selfish leadership that breaks the backs of the employees cause people to shut down?
Sprint has perfectly intelligent and capable people who have lost heart and given up. They exhibit resentment and hatred for the bright-eyed Nextelians who care and ask questions.
The company needs a charismatic leader of integrity who is willing to make changes, knows how to make light-speed changes and fire those who resist that change. The leadership must care about the employee and reward and encourage. Drop the fear, hubris, sense of entitlement, and self-interest.
The Sprint employee has generally only known the Sprint environment. The Nextel employee has experienced the two environments, Sprint's and Nextel's. Sprint is a miserable place to work in comparison.
Nextel people were overworked and overwhelmed but we saw the results of our blood and sweat. Nextel was an exciting place to work where we had leaders who paid us attention and rewarded us well for our efforts. The once-empowered Nextelian is used to making a difference. Recognizing a problem and fixing it quickly is hugely encouraging to want to do it again. No, the environment wasn't perfect, but many of us after the merger recognized how really good we'd had it.
Sprint is slow, unrewarding, full of despair and passive-aggressive behavior, upper management is utterly unengaged and uninformed, the gun-shy employee is afraid for his job security, The result is labyrinthine product design, poor customer service, contempt for the customer, contempt for the employee, disinterest in financial accountability, inability to respond to immediate market demands. The tangible customer experience is symptomatic of the core issues at the heart of every Sprint department and division.
The merger didn't result in identifying good processes to keep and those to optimize. There was never deep analysis of department structures, objectives, and methods. The opportunity to fit experience of upper management to the positions they hold was never addressed. Instead, employees were simply merged apparently based on location and little else.
The change must come from the top.
I agree, though TD is not the woman to do this. he proved that when he walked away. I am sure Sprint people would disagree about "oh it all fell on OUR shoulders, We were SO over worked, We had it so good before Sprint, and cry, and moan, and whine some more please. Thats the elitist BS tudes I am talking about. I can understand why Nextel people must feel somewhat overwhelmed as the company didnt even have a network so to speak of. But I do find it funny that all you Nextel folks have time to come here and post dissertations about the whys and whats of every little thing that is wrong with the company. Then I dont work there so I dont know what really goes on but I assume they have wifi at the campus coffee shops. Dont you have work you could be doing?
Aside from that, who would fit the characteristics needed to lead Sprint out of its RBOC inertia?
Sprint does not act like an RBOC I cant seem to understand why some people feel that way. It is the largest non-unionized carrier though and there is something to be said for that.
Todd, The Disciple, An Invested Observer, NY are right.
Still in the Middle makes valid points.
Its hard to live through life at Nextel then have everything change in the Sprint environment without identifying all the differences. Nextelians are used to making observations, running the analysis, and making the changes. So here we are noting the problems we see. Will it make a difference?
Reiterating a point already made, this isn't about Sprint vs. Nextel. The two entities combined because each had something to offer. Now its one company that needs extrordinary leadership.
I agree, 'tough but fair' is the leadership needed. You are not alone in wanting someone untied to either side. The Nextelians really did love the Tim experience. You didn't know him, and this allows you a different perspective.
The approach of a wireless carrier and Sprint is terribly different. If you had worked in both environments, you'd see. I've worked for a few ILECs/RBOCs and the environments drastically and deeply differ. This is the basis for the shock that most Nextelians underwent at the merger.
Yes, non-union is a huge advantage.
The Sprint environment is similar to my experiences with government and the RBOCs/LECs. The disparity with Nextel is huge.
Even if you don't think Tim made the right decisions about the network that is not what kept Sprint Nextel from being successful. The iDen network has been at best ever performance levels for several quarters yet the high ARPU business customers are still fleeing at alarming rates. There are much more fundamental issues. One positive thing about Tim was that the stock went from $2/share to $30+/share with Tim at the helm. Shareholders sure did benefit from that..... As much as 1500% growth is great to dream about, I sure would like to see Sprint Nextel stock even return to its price at the time of the merger.