Are Short-Sighted Sprint Investors Throwing Out The WiMax Opportunity With Forsee?

from the risk-vs.-reward dept

Tue, Oct 9th 2007 7:21pm — Derek Kerton

As per the rumors circulating for just a few days, activist investors, and disgruntled shareholders have ousted Sprint CEO Gary Forsee. There are three main reasons for the ouster -- and not all of them make sense.

Sprint has a relatively high churn rate among the majors, and is acquiring new customers much more slowly than chief wireless rivals AT&T and Verizon. For the next quarter, Sprint has issued guidance that they will suffer a net loss of over 300k subscribers, which is atrocious in a time when AT&T and VZW are net adding about 1.5M each. There seems to be no resonating marketing message, and the brand is suffering.

My take: This is a problem that can be blamed on Sprint management and marketing execs, and possibly right up to Forsee. Sprint needs to find a message that resonates with customers, stick to it, and rebuild the brand. Realistically, their service is scarcely better or worse than the other oligopilists, but the perception is that it is worse.

The Nextel merger is not going as well as expected, with delays in integration, and frustration and churn among Nextel's formerly loyal blue-collar Push-to-talk (PTT) base. Prior to acquisition, Nextel was the goose that laid golden eggs, with ~$70 ARPU, but that goose is plucked.

My take: The roots of this problem stem from the "Nextel Spectrum Swap" that was in motion long before Sprint stepped in. Nextel is vacating spectrum that it promised not to use because it was interfering with Public Safety radios in the 800MHz band. As it vacates, existing Nextel users are getting crammed into a smaller band, and quality is suffering. The only cure is to speed up the rollout of EV-DO Rev.A, and get Nextel users migrated to PTT services over CDMA. Sprint is showing every sign of doing this, so is there any executive culpability? Perhaps the Nextel merger was simply ill-conceived, and overpriced.

Investors are not thrilled about Xohm, Sprint's big venture into WiMAX service at 2.5GHz.

My take: This is a serious fundamental disconnect between investors and management. The Xohm effort is something I earlier described as follows: "Sprint's 2.5GHz strategy is tied in my mind for "gutsiest US telco project" with Verizon's FIOS project. If Sprint succeeds, they will have a sustainable advantage that their competitors cannot easily copy (for lack of spectrum)."

The disconnect is that investors in Sprint are risk-averse, Blue-chip, dividend seekers. They invested in Sprint when it was a utility company. But Sprint's "gambit" into WiMAX has taken them way out of the "utility company" comfort zone -- and the reaction of the investors is as expected. With Xohm, Sprint's risk profile is looking more and more like a big tech firm, say Yahoo or Apple. Today's Sprint needs risk-seeking investors, not fixed-income seekers. Of course, the result is that Sprint is churning investors faster than it churns subscribers. And it's easier to lose old investors than to gather new ones.

Perhaps existing investors would rather see Sprint sell off its 2500MHz spectrum to some VC, private equity-backed group that could take the risk, and pay a dividend to shareholders. But that doesn't make sense. It's exciting to finally see a telco do something bold, take risks, and...yes...even get a bit desperate. Because it is in desperation that the telco will break ranks and do radical things, like give the customer what it wants. Xohm promises no long contracts, open-access to any compatible device, ample bandwidth, and reasonable and varied pricing plans. Damn, does that sound like a breath of fresh air! Techdirt is firmly in the camp that so doing, a telco would actually INCREASE the value of their products, and grow profits.

By no means is Xohm a slam dunk. WiMAX is, as yet, largely unproven. Timing is essential, and any significant delays will reduce the Sprint advantage. But an early success would radically change the wireless landscape, and could not be readily copied by competitors. In Sprint, we have the best of the capitalist system, where the effort could succeed or fail, but in pushing the envelope by merely entering the race, things are better for all consumers. Forsee or not, I hope Xohm lives on.

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Filed Under: gary forsee, wimax
Companies: sprint

16 Comments

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][nfurnus, 9 Oct 2007 @ 7:28pm

YOU SPELT Xohm wrong
http://xohm.net/
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Mike (profile), 9 Oct 2007 @ 7:40pm

Re: YOU SPELT Xohm wrong
Fixed... thanks for pointing it out.
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Anonymous Coward, 9 Oct 2007 @ 8:14pm

Youre right!
The "old style" investor you describe is looking at Sprint purely as a utility that has morphed into a wireless cellphone provider. Sprint is given very little credit for being a Tier 1 Internet Provider, and its gutsy WiMax/Xohm test. The backbone fiber network is a huge asset(which incidentially carries cellular traffic, imagine that).
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cd, 9 Oct 2007 @ 8:42pm

xohm should be worth it
should it ever come to fruition, but the problem is with the subscriber base. the problem there is the phones. the phones suck on sprint...plain and simple. sprint has the cheapest data plan....market that. be aggressive with phones and people with come. it really is that simple.
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Chris Maresca, 9 Oct 2007 @ 9:51pm

My business partner...
... recently ditched Sprint as they wanted to charge him full price for new cellphone (this was after being a customer for years). He went with Verizon.

And that basically put an end to my attempt to get all the execs in my company on the same provider so we could save some money. Sprint's lost at least $1500/month from us due to poor customer service and generally poor hardware.

I'm not surprised they're loosing customers if they treat long-standing, lucrative customers (spending > $300/month on cell+data) like this. I can't even imagine how they treat people spending $40/month.

Chris.
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Planetjeffy, 9 Oct 2007 @ 10:44pm

Sprint will prove everyone wrong. Wimax is the fu
and the future is almost here. All cell phones suck, especially when you want to connect to the web. Wimax cost 1/10 as much to get the same coverage as a cell tower. Everything and everybody will be connected to the web - and Wimax will do it, next year. I can't wait.
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Arizona John, 10 Oct 2007 @ 12:34am

I have followed the WiMax development very closely for about a year. I am heavily invested in companies like Sprint, Clearwire, Alvarion and others which are on the right path. Open the network to mobility. There are endless possibilities. Everyone is going to want a device be it cellphone, camera, navigation, mobile TV that can connect. What network are they going to go through? WiMax! Who will have it? Sprint. These other carriers have tried all the tricks they can do with the current cell networks trying to be connected. WiMax is IP based the true protocol of the web. Sprint would miss the boat that they are currently steering if they give up now.
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alaric, 10 Oct 2007 @ 8:27am

Some other issues
1) sprint has not managed the nextel network well and has in fact released (as in fired) some of its key technical staff that ran that network.

This is bad management. Like it or not, sprint still has iden and it needs to maintain it not toss out the people who did maintain it

2) Xohm is an unproven service using unproven technology

Sprint's spectrum might have provided it with a sustainable advantage if they hadn't chosen the least efficient mobile technology out there (which is mobile wimax). On top of that Mobile wimax is supported by no other major mobile carriers. LTE is better and it will probably be commercialized 18-24 months after wimax (maybe sooner) and long before Sprint has any sizable WiMAX coverage.

3) The market wants voice QoS / Coverage not data
Sprint's coverage is seriously deficient in several key parts of the northeast.
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KD, 10 Oct 2007 @ 8:32am

Could the other carriers be behind this?
I have absolutely no knowledge of this happening, but it makes a good conspiracy theory to wonder whether the other carriers were unhappy about Sprint's Wimax efforts and engineered Forsee's demise. Probably not, but I wouldn't be a bit surprised if it happened to be true.
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SumDumFul, 10 Oct 2007 @ 3:47pm

Re: Some other issues
alaric - yours is the smartest analysis here on the subject. Anyone who thinks Sprint should go for broke and bank it all on WiMax does not know the cellular business. Data services account for less than a fifth of the revenue that voice generates. It will be a long time before wireless companies can pay the bills with data. WiMax could do voice via VoIP, but QoS issues will have to be worked out before that can ever replace current cellular voice technologies. WiMax doesn't necessarily need to be shelved completely, but spending that $5 billion on beefing up their CDMA coverage and customer service would go a lot further than WiMax in turning Sprint's sinking ship around.
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Mike (profile), 10 Oct 2007 @ 4:29pm

Re: Re: Some other issues
SumDumFul, would you like to admit who you work for?
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Mike (profile), 10 Oct 2007 @ 4:35pm

Re: Some other issues
1) sprint has not managed the nextel network well and has in fact released (as in fired) some of its key technical staff that ran that network. This is bad management. Like it or not, sprint still has iden and it needs to maintain it not toss out the people who did maintain it

That's partly true... but no one expects the company to completely maintain legacy technology forever. It is true that Sprint has done a pretty dreadful job with the transition. But to say that they simply maintain iDen doesn't seem all that smart. If they can build a better network and transfer everyone over to it, that's the way to go.

2) Xohm is an unproven service using unproven technology

Indeed... but the strategy was sound.

Sprint's spectrum might have provided it with a sustainable advantage if they hadn't chosen the least efficient mobile technology out there (which is mobile wimax). On top of that Mobile wimax is supported by no other major mobile carriers. LTE is better and it will probably be commercialized 18-24 months after wimax (maybe sooner) and long before Sprint has any sizable WiMAX coverage.

No doubt. In the past we've agreed with you that WiMax isn't the best solution out there -- but you have to admit at some point that it's won the battle. The earlier better solutions lost the momentum and early leadership positions they had, and the newer solutions have their own challenges to overcome. LTE is good stuff, but I doubt the 18 to 24 months is really that accurate, and if (big, big, big if) Sprint actually does a good job rolling out WiMax, that 18 to 24 months will make a huge difference.

3) The market wants voice QoS / Coverage not data
Sprint's coverage is seriously deficient in several key parts of the northeast.

We're talking two different markets here. Yes, the voice market wants voice QoS/coverage, but there's also the data market which is a separate (but big) one. Yes, Sprint needs to improve its coverage and voice QoS (and its reputation on that front). But tossing out the next gen network is throwing out a whole lot of baby with the bathwater.
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Alaric, 11 Oct 2007 @ 7:50am

Re: Some other issues
As was said above, Sprint's best bet (for their shareholders) is to invest more into EV-DO, improving coverage, capacity and expediting the iden to CDMA migration. They should invest an absolute minimum in WiMAX (just enough to keep their spectrum and the FCC off their back) and they should migrate to LTE when its available.

WiMAX is a distraction and the business model actually offers evidence of consumer disinterest. Its a bad idea. The voice users pay the bills for sprint. Fix the EV-DO network, get voip working.

I strongly disagree with post from mike that WiMAX has won any battle over LTE. One carrier is going to WiMAX. All of Europe is going LTE along with AT&T and perhaps Verizon.
On top of that mobile WiMAX still does not really work that well and i have minimal faith in Intel's ability to work it out.

Furthermore. I'd add that 802.16m is ultimately Intel's and the WiMAX community admission that 802.16e is suboptimal. 802.16m could be a serious competitor but 802.16e is really just a 3G tech with good advertising. As it stands today 802.16m will be later than LTE.

More importantly, Sprint needs to fix its problems and deploying scant wimax coverage will do nothing to heal what ails that firm. Its an attempt by gary forsee and company to distract from the firm's real problems without solving them, a bad idea. Kicking forsee out was a very good idea.

SPRINTS ISSUES:
bad marketing
Wretched relations with iden subscribers
Poor Iden network quality
Poor coverage in key areas
High cost of iden subscriber equipment (comparatively)
Integration issues
Poor adds (probably a result of other problems)

Wimax solves none of this
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Derek Kerton (profile), 9 Nov 2007 @ 8:59am

WiMAX Isn't About "Fixing"
Alaric,

You misunderstood one point of Mike's. He said that we have to admit, at some point, that WiMAX won the battle. He wasn't referring to the future battle against LTE, but the battle from 2002 - 2007 with Flarion/Qualcomm technology, UMTS data, and UMTS TDD. Those technologies -- while some were definitely better than WiMAX -- have not garnered anywhere near the ecosystem support of WiMAX. We still think Sprint was wrong to choose the worse, unproven technology simply because Intel handed them a bag of cash to do so. That said, bygones are bygones.

As for your list immediately above on Sprint Issues, you're spot on with those. You are also correct that WiMAX solves none of those (at lease in short to medium term). But does everything Sprint does need to exclusively target the problems? Or can a subsidiary be launched that provides new opportunities?

For example, should Apple have focused on the fact that their OS only had 8% of the market in 2000, and been exclusively focused on fixing that poor market share? Or was it an OK idea for them to dapple in a new opportunity with these crazy portable media players the kids seem to be talking about?

I think the example above makes my point well, but to be fair, few ventures from established companies are as successful as the iPod. On the other hand, I'm so sick and tired of our corporations being gutless and never trying anything out of the box. I love to see a company try to do something new, something different. You'll never hear us say the Sprint 2.5GHz effort isn't a gamble...we just like to roll the dice once in a while. Clearly Sprint investors don't agree.

You, Mike, and I are all on-board with our doubts about WiMAX, and how soon it will perform as promised...if ever. However, Mike and I have let go of our religion. Basically, we really want a good solution for mobile broadband to exist nationwide, and we're less invested in which solution it actually is. That's why we are now somewhat enthused about WiMAX, just as we were once somewhat enthused about VHS -- it wasn't the best option out there, but if it gets a VCR into every home, it IS the revolution. Like VHS, WiMAX is an inferior solution that has massive industry support. Massive industry support has proven to trump superior technology over and over again.
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EDELHO, 22 Nov 2007 @ 12:36am

WIMax in the verge
I still don´t see any add or any new publicity on any media. Can this mean more problems from the rollout perspective?

Any way, WiMax is not the Sprint salvation, this is only a change of bussines but there is no way to compare this technology to HSPA or LTE at this moment, but from real life HSPA networks, they are doing what they suposed to do. And the most bogus is why Sprint hasn't made more noise yet if they are so close to the commercial launch?

Any one who has read the 802.16e standard will notice that this technology is a copy of IDEN in the Radio Resource Managment and Radio procedures (WHICH IS PRETTY BAD).Power control is a dumb OPEN LOOP algorithm and codec scheme is very poorly controlled. This mean a 10% to 15% throughput loss (recalling this is a TDD will have 37 Mbps in DL and 25 Mbps splited between all the users in a lucky peak of troughput)

Overhead in 802.16e is a shameful waste of resources ( substract another 25% of the total troughput)

Now, due to 2.5 Ghz propagation conditions, the border of the cell where the mobile will be forced to use a low troughput Codec Scheme, this will lead us to loss another 30% of troughput......

Geezzz, what a waste of money, i do prefer CDMA or WCDMA wich have more BTS or BS sensitivity (reception)...

It was very early to lauch this technology if they really wanted an impresive launch.....

Time will prove it. But don´t expect a lot of it. Physics are Physics....

OUCH, i forgot to mention, THERE IS NO SEAMLESS HANDOVER in WiMax, is a Hardhandover wich means that this will have to do some kind of warm restart of data transmition (any one with TCP/IP knowledge can notice this, mobile has to do a STOP of transmission). So guess what?.... Another backward for real life troughput, due to size of the cells from the used frequecy.....

THIS IS APLICATION WAS INTEDED FOR FIXED LINE, MOBILE IS A PATCH IN THE STANDAR WITH VERY POOR IMAGINATION AND KNOWLEDGE OF LEGACY WIRELESS NETWORKS. Mobile Wireless Networks is not the INTEL Bussines.

Lets says that i work for the incumbent and i´m really scare with this tec review. i really see LTE as a very impresive technology, and UMB is too, but Qualcomm is very mean with the IPR. So i hope LTE to overcome WiMax and UMB as a stable and massive solution (only if Qualcomm doesn´t lower the prices of the products)
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Derek Kerton (profile), 28 May 2009 @ 4:15pm

Re: Sprint will prove everyone wrong. Wimax is the fu
How'd that work out for you, Jeff?

I think you were a little over-enthused.
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