October 10, 2007 4:00 AM PDT

Sprint's WiMax dilemma

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If Wall Street pundits get their way, Sprint Nextel's next CEO will put the brakes on plans for a new, high-speed wireless network.

But such a move, while no doubt cutting costs, could condemn the struggling company to also-ran status.

After months of declining subscriber numbers, Sprint Nextel announced Monday that CEO Gary Forsee had stepped down as chairman and chief executive officer. Forsee's departure had been a long time coming, as investors, upset over the company's poor performance, had been pressuring the company's board of directors to make a change at the top.

Among investors' biggest concerns is Sprint's plan to build a next-generation wireless network using a technology called WiMax. The company has committed itself to spending $5 billion in the next three years to build the network, with about $2 billion of that money earmarked to be spent in the next year to get WiMax coverage to about 100 million people by the end of 2008.

Wall Street analysts and investors say Sprint's WiMax dreams are an unnecessary and dangerous diversion for the company, which is still struggling two years after the $36 billion Nextel merger to realize any of the cost savings that had been promised when the merger was announced.

"They need to get back to the basics and learn how to run a wireless company. This means focusing more on the present rather than the future."
--Patrick Comack, equities analyst, Zachary Research

"They should stop the WiMax rollout immediately," said Patrick Comack, an equities analyst with Zachary Research. "They need to get back to the basics and learn how to run a wireless company. This means focusing more on the present rather than the future."

But without an ambitious plan for the future, Sprint's long-term prospects look even more bleak. The reason is simple. Cell phone penetration in the U.S. market is approaching saturation. For Sprint to grow, therefore, it will have to steal customers from competitors.

But Sprint, the third largest operator in the U.S., may face a tough sell trying to entice customers to abandon their existing service for something similar. Unless Sprint wants to launch an all-out price war on its services, the company will need to present new, compelling features that no one else is offering.

"Sprint needs to have something sexy in the marketplace," said Colin Orviss, head of telecommunications strategic consulting for Patni Computer Systems, a global systems integrator. "A new 4G network using WiMax with truly new and differentiated services layered on top would help Sprint stand out from the competition. And that's what is needed to make a service more interesting to customers."

Since Sprint acquired Nextel in 2005, the company's stock has declined roughly 27 percent. And as competitors such as AT&T and Verizon Wireless add revenue and subscribers, Sprint has steadily been losing customers. On Monday, the company said it plans to report that it's lost about 337,000 "post paid" customers in the third quarter of 2007.

Last week, activist investor Ralph Whitworth, who owns about 2 percent of Sprint's outstanding stock, told The Wall Street Journal that he had lost confidence in Forsee and expected the board to take action. Whitworth has been among the loudest critics of Sprint's WiMax strategy.

Sprint's board looks to be heeding this advice with Forsee, one of the fathers of the WiMax strategy. Once a new CEO takes charge, the company's aggressive plans could be tabled indefinitely.

For now, Sprint says it is moving forward with its WiMax plans.

"I can't speculate about what a new CEO will do," said Leigh Horner, spokeswoman for the company. "But for now, we are continuing to build out the WiMax network. We expect a soft launch of the service by the end of this year and a commercial launch in April of next year."

Sprint's plans to build a 4G wireless network took shape about a year ago, only months after the company launched its 3G wireless network based on EV-DO cellular technology. Using a nationwide swath of vacant 2.5GHz spectrum, the company selected WiMax, an IP-based wireless technology, as the basis for the network. Mobile WiMax promises to offer data speeds faster than current 3G wireless networks and over much longer distances than comparably fast Wi-Fi technology, which today is used mostly indoors to provide wireless broadband hot spots.

Technology giants Intel and Motorola jumped onboard as partners. Motorola promised to provide infrastructure equipment and handsets for the network, while Intel promised to seed the market with millions of WiMax-enabled devices.

Sprint said it would spend $5 billion to reach some 185 million people within three years. But many critics have viewed Sprint's decision to use WiMax, which has not been proven as an effective mobile access technology, as risky.

CONTINUED: Other risks to the strategy…
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38 comments

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Wall Street Short Sighted
If Sprint procedes with their WiMax plan, within the next year or two, they will be the only vendor with this capability nationwide. They will be in the lead. Future growth is going to come from data and applications....not voice. WiMax is the future. With WiMax, Sprint will be able to compete with ISPs, Cable companies, land-line phone companies, and more. Without WiMax, Sprint will just be another cell phone company.
Posted by ehfla (96 comments )
Reply Link Flag
Strangly confused
You knwo that Sprint is an ISP right? You know 34% of the WORLD's, that right the entire World, goes over Sprint's IP Backbone. You know Sprint sells IP, MPLS, Voice. WiMAX will enhance the convergence message.
Posted by Lsquith00 (1 comment )
Link Flag
You are absolutely right not only Sprint will miss out on the opprtunities that WiMax Network Technology offers but that it is the only chance it gets. the fate of Spring if it does not deploy WiMax is bankruptcy because the market share will continue shrinking if its customers do not expect innovation from their wireless service provider
Posted by controld3 (1 comment )
Link Flag
Agreed
They would just be another cell phone company...and a crappy one at that. The status quo definitely does not bode well for this company.
Posted by lamaze (9 comments )
Reply Link Flag
Sprint WiMax.
the next gen service will be awesome. and i think they should continue to spend the capital on it. if they stop now they will become nothing more then a backbone provider. they will loose their wireless division and spectrum because no one will go with them.

KEEP GOING SPRINT! INVESTORS KNOW NOTHING!
Posted by goodermote (1 comment )
Reply Link Flag
You're mostly right.
I think you mean "Investors who invest in Sprint know nothing."
Posted by TV James (680 comments )
Link Flag
Analysts
Those who can make it in business, do business.

Those who can't make it in business, tell others what they think they should do.

Analysts are given too much credit. Most of them have no industry experience. They get their information from competing company's PR departments.
Posted by jayhawk73 (61 comments )
Reply Link Flag
Cellular cartel has made USA a wireless gulag
The USA needs a universal mobile wireless Internet that breaks
down the walled gardens. The cellular cartel is reminiscent of the
unlamented pre-Internet era with CompuServe, AOL, and Prodigy.
Just give us the mobile Internet, and don't dictate our handsets or
our applications or in any way impinge our wireless freedoms. This
is the Net, it's not about voice minutes anymore--take your time
capsule back to the 19th Century and allow us to live in the 21st
Century.
Posted by alhart4cnet (4 comments )
Reply Link Flag
Good description
"wireless gulag" -- I like it. The USA must have one of the crappiest mobile networks in the world, I've tried multiple cellphone providers and they all suck. I live in a densely populated area of the country (the SF bay area) and yet it's a minor miracle if I can talk 5 minutes on the phone before the call is dropped. I've seen cell phones in other countries, they don't seem to have this problem.
Posted by Clouseau2 (329 comments )
Reply Link Flag
Money people rule - the beginning of the end
How many times haven't we seen this? Netscape - the original browser company - is a nice example of a situation where money people and lawyers took over, and the company was left over as scrap on the sideline of the spectrum. Netscape, together with Sun, could have been very innovative, but the money people didn't have the vision.

It looks like they now got a hold of Sprint, and innovation goes out the door. And that, while Sprint's EV/DO (3G) had the edge over Cingular's EDGE (2.5G) for years. Cingular (now AT&T again) promised a fast network, but didn't deliver, while Sprint had it. Therefore, many businesses selected or switched to Sprint.

AT&T might be catching up, finaly, but that's too little, too late for many that heavily invested in Sprint equipment and plans. Unless, of course, Sprint cannot be innovative (i.e. introduce WiMax / 4G), because of the restrictions the money people, lawyers, analysts, and other half-informed people rule.

Remember the day - if this course sticks, this could be the beginning of the end for a once innovative company. Sad.
Posted by whois101 (269 comments )
Reply Link Flag
Perhaps they could divert some funds to customer care?
it's amazing what i'm willing to put up with just to save $40+ a month (i'm on a sprint SERO plan, which includes 500 minutes, nights and weekends, unlimited evdo data for a ludicrously low monthly fee). i suppose you get what you pay for.

but if the way they're handling my phone's bluetooth issues (search for {sprint mogul bluetooth}) is any indication of their customer service levels as a whole, perhaps they do deserve the warnings i heard before singing up with them: "oh i hear sprint sucks" or "yeah, they have poor customer service--just hope you don't have to call them".

my two cents to sprint: work on your customer service, then work on improving your image.
Posted by jonkjonk (19 comments )
Reply Link Flag
Sprint Poor Customer Service (PCS)
couldn't agree more. And if they only had people who speak the English language talk to you, that would help
Posted by womanwalking (1 comment )
Link Flag
Yep, that's exactly it.
It's been seven years since we were customers. <a class="jive-link-external" href="http://www.epinions.com/elec-review-5BFB-BED33AA-3985F823-prod1" target="_newWindow">http://www.epinions.com/elec-review-5BFB-BED33AA-3985F823-prod1</a> Our customer care nightmare began when our phones just suddenly stopped working not too long after we moved to a new apartment. (They hadn't worked in the old place, so this was one of the requirements of the new place.) It was blamed on everything (including the chicken wire used in the stucco exterior).

I hear that since then, the technical reception problems have been largely rectified while customer service continues, being simultaneously offshored and/or voicemail-treed.

After going through what we went through, we swore we'd never again use a product with the Sprint label on it, wavering momentarily when the Disney MNVO was launched, but counting ourselves lucky for not giving in, seeing as how even that was cancelled recently.

The author is right, Sprint would have to do something momentously huge to differentiate itself. A faster data network isn't it.

The only thing I can think of is that they should sell themselves to someone else (Google? Time Warner cable?) and let the Sprint name disappear from the landscape, laying off most of the staff at the same time and letting the new company start over, keeping just the technical expertise and capital investments.

(Feel free to poke holes in this suggestion.)
Posted by TV James (680 comments )
Link Flag
Tech=good, Customer Care=critical
I work with a small business that uses Sprint on a shared business account. Every attempt to get service on the account is a nightmare. We make calls to confirm what we need to fix phones or change services, and get one answer. Then go to the stores or service centers and NOTHING is as we were told. My boss is ready to lose more than a $1000 just to get better customer service. Problem is we are not sure any of the competition is honestly better. Fix the service. Stop the bleed of the customer base.
Posted by web_ranger (1 comment )
Link Flag
Wrong View - convergence
This gives Sprint the path to a converged network. Don't be part of a dying breed of traditional telcom providers. This is a great time to reinvent Sprint
Posted by dsmithaustin (2 comments )
Reply Link Flag
They should compete on price
It's not the end of the world to compete on price.

The main thing is to create a competitive stance. Dropping the WiMax and competing on price, would come out of the blue.

The bigger companies would try to hemmorage losses until they could put sprint out of business, and re-raise pricing.

But if sprint really gets its costs model such that it profits at $9.95 a month (as an example) for basic cell phone service...then they wait it out, until AT&#38;T gets tired of losing money, and cedes the low end to sprint.
Posted by rdupuy11 (908 comments )
Reply Link Flag
Proof that Wall Street is clueless
The current wireless business model is dead when Wimax is universally available - and Sprint is in the lead with Wimax.
Posted by garryking (3 comments )
Reply Link Flag
WiMax may have kept me....
I have been a relatively satisfied Sprint customer for seven years now. However, I have grown tired of being locked down with limiting hardware choices and long two-year subsidized plans.

When I heard that Sprint was pushing WiMax, I said to myself, "hey, maybe I will stay with them after my contract is up." That is, if they can offer a service competitive with my local cable ISP. Perhaps I can bundle and save a few bucks.

Well, looks like that may not happen. This short term thinking will be the death of them. I hope that they do suffer at the hands of a tech company willing to invest in the future.
Posted by lewissalem (167 comments )
Reply Link Flag
When Bean Counters Run The Company...
Disaster always follows. Companies that have a passion for what they do, or make are the only ones that are viable in the long run. Yes they have to pay attention to the money or they will go bust. Companies that pay all their attention on the money may as well sell their assetts and become a stock fund invensting on those other well run companies that still have a passion for thier business.

WiMax may be a bust, so may the next 10 things Sprint tries. But one of them, if they keep trying will be a winner. But if all they do is milk the cow the cows going to get old and dry up. Then not even the investers win.

Sears dropped their catalog biz about the time the Internet was showing it's potential. They dropped it because it wasn't a winning deal for them. Along came Amazon, nothing more than an internet catalog company. Something Sears allready know how to do but...they blew it.
Posted by Renegade Knight (13748 comments )
Reply Link Flag
Telcos will need WiMax...
The next great thing is going to be location based services.

If you think about the data strain that will put on the wireless telco's networks, WiMax has a lot of advantages over the traditional cell phone technology.
Posted by dargon19888 (412 comments )
Reply Link Flag
700Mhz and WiMAX
Sprint must deal with the fact that it has a maximum of 18 Months before it will be competing with not only all the CellCo pushing their emerging high speed (maybe 1Mbps down)data nets,with AT&#38;T and their new 12Mhz of 700Mhz spectrum, and any new winners of the up coming 700Mhz of new spectrum being auctioned in Jan 2008 for release in 2009 time frame.
I also understand the WiMAX Forum is presently working to release WiMAX for the 700Mhz spectrum which will improve performance (maximizing # of connections too mobile customers and penetration o trees and structures) via higher bandwidth and reach over the limited 2.5Ghz spectrum being used by Sprints WiMAX net. Lower cost per base station to deploy as well.
Very interesting market place we've got here.

Jim
Posted by jacomo (115 comments )
Reply Link Flag
Ben Franklin "T" says WIMAX...
Ben was the first to urge us to put pros on one side of the "T" and cons on the other. My "T" leaves say "WIMAX".

Why? Because sucking hind *** while trying to lure customers away from the "Big Two" is wasted effort and IMHO, more cash depleting and company defeating...in the long run...than the short term WIMAX opportunity.

Sprint has great friends in this venture, some of whom have deep pockets...Intel...Motorola...Google!

No, with or without visionary Forsee at the helm, I say "carry on". WIMAX is awesome and bleeding edge and a no-brainer. The others will be sucking hind *** when it comes and Sprint is just the one to bring it to us. How do I know this? 'Cuz they are doin' it, as we speak. Wall Street...****!
Posted by rayted32-191126880979139043961 (19 comments )
Reply Link Flag
Pioneer needs to survive investor pressure
Sprint should survive investor pressures since neo-Luddites are saying WiMAX technology is unproven and risky. While making money on 3G, why should carriers move on to 4G to risk their current lucrative positions?

USA is years behind EU and some Asian countries in terms of mobile telecom technology , applications and even customer care. A lot of analysts ignore this fact.

The emerging needs for mobile multimedia will soon outgrow the 3G domain and should enter 4G in no time. Sprint has got no other choice but to stick with WiMAX even after a new CEO steps in, since giving up WIMAX is going to be more catastrophic.

Short term, Sprint will have to downscale its WiMAX launch, but will need to keep it as their flagship technology . Tech-savvy consumers are well aware Sprint will remain a pioneer to implement 4G in US territory, ahead of AT&#38;T and Verizon., which do not feel they have to run to adopt 4G since they&#8217;ve got plenty of juice left in the bottle of 3G.

An analyst said the investors haven&#8217;t gotten their dues from 3G yet, but some technology is just a kind stopgap stepping stone leading up to the next big wave. It does not follow that every stage of technology breakthroughs should be justifiable by ROI.

Market researchers and financial analysts are not always making the right analyses and reliable long-term projections because they tend to look more into the rearview mirrors and are blind to the future of technology breakthroughs coming around the corner.
Posted by Quemannn (76 comments )
Reply Link Flag
Google should buy them
Google should buy sprint. It would instantly make sprint "cool." and sprint has always been the most data ready provider. The first on PCS, the first with a real nationwide 3g network, the first with reasonable data prices etc.

Google would add brand cache, cash, and the ability drive and vision to get wimax out. The combo could be deadly.

Google going it alone could fall on their face due to lack of experience and no existing network in this space.
Posted by mchinsky (48 comments )
Reply Link Flag
Sounds cool
I thought about a buyout by a cool player, but could not decide who could be the one.
Yes, Google might consider it positively since Nokia has already branched out into a media segment.
Posted by Quemannn (76 comments )
Link Flag
The problem with Sprint / Nextel?. Commercials!!!
One of the problems I see with Sprint is there commercials. Note to any Sprint exec reading this, When I was a kid I did not dream of a freaking cell phone that didn?t work half the places I need it to. Nor did any of my friends, we dreamed of being astronauts and explores and a cops, not of some cell phone. Every time I see this stupid commercial on TV it makes me want to though my work cell (that?s a sprint Nextel hybrid) at the screen! Don?t tell me what I wanted when I was a kid because you don?t know. Tell me why your cell phones rock and what the advantages are to using your phone over the competition. Don?t try to speak to my inner child because my inner child will take that cell phone break it and look at pieces. Sorry to rant but I really dislike Sprint?s commercials.
Posted by tomcat1483 (2 comments )
Reply Link Flag
RE: Sprint commercials
Wow! interesting. I think that Sprint's commercials are among
thee most creative on the air. Especially the one referred to.
it's gorgeous, hip, and makes you feel like anything is possible.
The music is so beautiful and catchy as well.
Interesting as well is the fact that the AD first mentions,
Space Travel, I.E. Astronaut? and Time travel, (which I definitely
dreamed about.) magic screen NO. but that's the segue, and the
ad does say, MAYBE. so they're asking you to go along with
them, and with an AD that has that much visual and musical
style going for it...I'm willing to listen.
It's not to late to become an explorer!
Posted by korbeau (1 comment )
Link Flag
The Air Belongs to the People. Not the rich.
Old radio technology necessitated the creation of the FCC and similar authorities to mete out a scarce resource, spectrum.

Modern radios, however, because they can maintain hundreds of simultaneous full bandwidth beams, reuse the same slice of spectrum infinitely.

There is no need to restrict access to this spectrum to a few enteties. Beams of WI-Fi at 5.7, 5.2, 2.4 do not interfere with each other. Beams of data carried on 700 MHz follow the same rules as any other photons.

The telephone switching providers do not need to outbid each other to "own" a slice of it, the role of the FCC would focus on promulgating and enforcing strict part 15 technical standards, just as is now the case with 2.4, etc.

Because every radio in 700 MHz can relay public safety messages, first responders are given a self healing network. Using GPS information for routing simplifies everything. Every handset would simply transmit its location as part of the address.
Posted by disco-legend-zeke (448 comments )
Reply Link Flag
Big Money and WiMAX
When you have a coupla billion dollars at stake, I guess it's not too surprising that you'd be conservative.

Smart people do stupid things all of the time, but I'm really surprised that big investors in tech and telecom stocks don't understand the difference between mature and evolving markets. Sprint is pretty clearly in an "innovate or die" environment. Focusing on today means few tomorrows or huge catchup investments.

This move may be the best thing for Google, Microsoft, Verizon and AT&#38;T, it takes some of the investment pressure off and gives Google and M$ more options. One option may be buying Sprint at firesale prices from investors running scared. Something about "keeping your head when all about you are losing theirs"
Posted by ozindfw (2 comments )
Reply Link Flag
Snatching Defeat From The Jaws of Victory
Just when Sprint was about to knock one out of the park ... they pull the batter and put in someone who can only make base hits.

Sprint - without WiMax, it is just another crappy cellular company with crappy customer service and crappy coverage.

If Sprint ditches WiMax, they will have nothing and this turd will sink to the bottom of the toilet.
Posted by USDecliningDollar (243 comments )
Reply Link Flag
WiMax Litmus Test
With the advent of iPhone and other converged media devices, I cant help but be excited with Wimax. It will spur the adoption of internet mobility, hence there will be real-time information and opportunities in e-ads.

Network operators such as Verizon or AT&#38;T offers internet connection that lags behind hotspots wi-fi. I have previously owned a Treo and it commendably works with text-infused web pages. But what about streaming videos or skype on the run?

Contemplating on this matter--surely telecom giants wont provide me a Skype option to make phone calls or text cheaply. That's against profit code.

And so I look forward to WiMax as an alternative or the 700Mhz spectrum auction next year. Regardless of the outcome, I hope to use my 80G unlocked iPhone/Skype-Google enabled device.
Posted by Felisita Cheung (14 comments )
Reply Link Flag
Sigh . . .
Count me as another Sprint customer hanging on to wait for WiMAX. If it doesn't happen, I will go elsewhere to whomever does implement it, so long as there is an open device policy. I hope, along with others, that if Sprint fails, Google or someone else will buy the relevant assets and build out the WiMAX network. I certainly don't want to give a dime to the closed network folks at Verizon or AT&#38;T. Sprint's announced business model of open devices was one of the biggest attractions of its proposed network. Oh well, we'll just have to wait a little longer for someone who knows how to disrupt instead of milk.
Posted by curtiscarmack (20 comments )
Reply Link Flag
Smart Move
Customers want reliable wireless broadband access. And not just to check their email or surf the web. They want it to watch streaming video, listen to internet raido, and most importantly to play online games like WoW. That is the next generation of service. That is where Sprint is headed with this plan. Imagine portable X-Box's where kids play online games using this technology - do you really think Sprint will go bankrupt providing true wireless broadband to that customer base? Not to mention all the other customers who have been waiting for this kind of service.

Before you discount Sprint's ideas you need to do some market research - Ask people if they want to play online games via their wireless notebook (or eventual wireless xbox, psp, etc.) Also ask their kids. Right now we all know how big texting is - think about people having the option of making it a video conference instead.
Posted by Whist34 (3 comments )
Reply Link Flag
 

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