Wireless Connectivity

Sprint's WiMax move the first of many

WASHINGTON (MarketWatch) -- Sprint Nextel Corp.'s move to fold its wireless-Internet assets into a new joint venture is just one of many steps it's likely to take to fix its faltering phone business.

Earlier Wednesday, Sprint said it would combine its WiMax division and a huge chunk of spectrum with smaller partner Clearwire Corp. in a venture that aims to deliver superfast wireless-Internet speeds.
The venture will also receive $3.2 billion in funding from technology leaders such as Google Inc., Intel Corp. and Comcast Corp. See full story.

The move was the right one for several reasons. For one thing, it will allow Sprint (S:
Sprint Nextel Corporation to cap the amount of investment in WiMax and limit its financial exposure. What's more, the company's new management team can now concentrate most on repairing its main wireless business.
"The funding needs [of WiMax] are taken care of. Somebody else is running the shop," said analyst Jim Moorman of Standard & Poor's Corp. "It's a big step."
Chief Executive Dan Hess, hired by Sprint last December, echoed that point in a conference call
"This arrangement enhances Sprint's financial flexibility and allows us to focus our time and resources on our core operations," he said.

Such renewed focus is desperately needed. Sprint has lost millions of customers over the past two years to rivals such as AT&T Inc. and Verizon Wireless. It could lose millions more if quick action isn't taken.
Phil Redman of the consulting firm Gartner said the carrier has been pulled in too many directions and has to scale down its ambitions. "Sprint's problems basically boil down to this: It wanted to be all things to all people," he said. "They are not succeeding at anything."
The next step is for Sprint to figure out what to do with Nextel. The business was acquired in 2005 in a $35 billion deal that's now seen as a colossal mistake. Nextel operates on a different network and has suffered from inattention, spurring millions of customers to defect.
Although Sprint reportedly has considered spinning off Nextel, most analysts doubt the company will proceed. Sprint has already spent several years integrating Nextel into the parent company and little would be gained by carving it out now.

"Their network integration is mostly completed," analyst Tom Watts of Cowen & Co. wrote in a research note. "We believe breaking apart these assets now is likely to cost more than the value a spin-off could create."
A more likely scenario is for Sprint to try to move all its Nextel customers on its primary network, which is based on the CMDA technology pioneered by Qualcomm Inc. Nextel's network runs on a rarely used and unusual Motorola Inc. technology known as iDen
Sprint has been trying to achieve that goal since the merger, but it's only now getting to the point where it might be possible. The carrier has moved cautiously with the switchover to avoid disruptions that would spur millions of additional Nextel subscribers to flee.

The main advantage of iDen is that it allows Nextel phones to operate like Walkie-Talkies, a popular feature among the higher-paying business customers and mobile workers who use the service.
Sprint hopes to duplicate that service on its CDMA network with a fledging technology called QChat.

Beyond larger strategic issues involving WiMax and Nextel, Sprint needs to get back to basics. That means offering better phones and simpler pricing plans while improving customer service. For years Sprint has had the worst ratings in the industry.
Only then will Sprint begin to improve its badly damaged brand image.
"Fixing the brand image is a key to bringing them back," said Bill Ho, research director of wireless services at Current Analysis.

With all the work Sprint has to do, most analysts believe the sale of the company to Deutsche Telekom AG or other suitors is unlikely in 2008, especially given the low price shareholders would receive. DT was reported earlier this week to have engaged Sprint in exploratory discussions.
"Hesse wants a shot a turning this around," said S&P's Moorman.

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