It was supposed to be a formidable competitor in the mobile wireless industry, leading the industry in key financial metrics and in innovative services. But less than three years after Sprint and Nextel merged their operations in a $36 billion deal, the company is now trying to stop the bleeding.

As it entered 2008, Sprint Nextel faced a plethora of problems — problems that will require some dramatic decisions by CEO Dan Hesse, who was newly installed at the end of 2007 after former leader Gary Forsee resigned amid shareholder pressure. Customers subscribing to the carrier's iDEN service are leaving the company at an alarming rate, customer service is suffering, Sprint's integration with Nextel has not yielded any synergies or capital savings, and the operator's $5 billion plan to roll out WiMAX nationwide is being heavily questioned by shareholders.

Meanwhile, the company's financial position continues to grow more precarious as net income drops substantially each quarter. As of press time, Sprint had not released its 2007 fourth-quarter results, but analysts are anticipating an ugly quarter, with a net loss of customers potentially reaching 400,000.


Nextel was an attractive acquisition target throughout the late 1990s and early 2000s. Its industry-leading average revenue per user (ARPU) and extremely low churn rate were the envy of the entire mobile operator industry. Nextel's secret sauce was its ability to offer a high-quality push-to-talk (P2T) application that enabled worker groups to contact each other instantly and more cheaply than traditional cellular services. Today, however, iDEN users are defecting at an alarming rate. According to analysts, Sprint Nextel now has fewer iDEN customers on its network than the former Nextel did in 2003, and the customer base could drop to less than 10 million by the end of the year. The company is losing about 1 million iDEN customers per quarter.

“Network performance was poor in 2006 and 2007, and at the same time, Sprint cut the Nextel advertising brand significantly,” said Walter Piecyk, an analyst for Pali Research. “Customers were confused about where they could actually buy product, and the falling levels of customer service sent a poor message about the product they held in their hands.”

Indeed, once Sprint's merger with Nextel was consummated in mid-2005, it was as if the Nextel iDEN business ceased to exist. Management clearly emphasized a consumer play leveraging Sprint's CDMA EV-DO network and highly evangelized the benefits of WiMAX technology, which the company plans to roll out in the 2.5 GHz band this year.

“Sprint hasn't necessarily shown a solid commitment to the enterprise,” said Phil Redman, vice president of research for Gartner Research. “Within the enterprise, there is less emphasis on [P2T] today. There are certain groups that it's important to, but it's not something that is really emphasized in specific groups. It's not a requirement that is on the top of the list any longer.”

Chris Hackett, vice president of public sector sales programs for Sprint, admits the company has stumbled in many areas when it has come to the iDEN network.

“We had network performance issues — that was a key factor,” Hackett said. “And we had issues around things such as handsets and functionality. We weren't coming out with a lot of new slick handsets.”

Network quality suffered throughout much of 2006 and 2007 because Sprint tried to deal with a capacity crunch by using a 6:1 vocoder, which used compression technology to pack more end users on the network but resulted in poor voice quality that often sounded garbled on the other end, Hackett said.

John Byrne, a director for Technology Business Research, agreed. “The assumptions about the iDEN network in general were wrong,” Byrne said. “They thought they could scale back on [capital expenditures] before the merger by implementing a new vocoder. But overall, the limitations of that technology are being revealed.”

Network capacity also has taken a hit as Sprint works to reconfigure the 800 MHz band so that its operations no longer cause harmful interference to first responder communications. “Rebanding of the spectrum has proven to be much more difficult than management thought it would be,” Byrne said.

But Hackett said the iDEN network now is performing better than it ever has after significant investments from Sprint — $7 billion on network enhancement in 2006 and 2007, with 1800 new cell sites in 2006. The key now is wooing back angry customers who were fed up with the poor network quality.

To accomplish that, the company has implemented what it calls its “Get Well Program,” which is focused completely on sales, Hackett said. The effort includes town-hall-style meetings around the country with employees and key customers to discover how Sprint can win customers back.

“We understand there is a problem with the network, but a real challenge for Sprint was the lag time between making investments in the network and the outcome of improved performances. By the time we fixed the network issues, we had lost our customers. So now our goal is to win these customers back,” Hackett said.

To this end, Sprint soon will begin implementing “Come Back” campaigns in select markets. Advertisements will feature customers “coming back” to the network, as well as more appealing devices that have been lacking. In addition, Sprint is conducting road shows and conferences with both enterprise and public safety users.

For the most part, public safety users have been the most loyal on the iDEN network given their need for an adjunct P2T service that complements their land mobile radio systems. Hackett says public safety users have left the network only to come back because they needed the additional P2T functionality.

Charles Werner, chief of the Charlottesville, Va., fire department and a member of various public safety communications working groups at the local, state and federal levels, reports no problems with the iDEN system. It is used as a parallel network for daily operational functions and is integrated with Charlottesville's 800 MHz system in a manner that allows first responders using the iDEN service to talk directly with other public safety personnel as if they were on a portable radio.

However, Steve Rauter, executive director of the Western Will County Communications Center regional dispatching center in Plainfield, Ill., says several users in the fire service have abandoned Nextel and are going with services that offer better rates.

“Verizon is making a play, but the P2T service is slow,” Rauter said. “It has a state contract for data cards and is parlaying that with bundled airtime. It doesn't do P2T that well, but it is stealing a lot of customers from Nextel.”

The public safety community in Plainfield has been hit with a number of quality problems on the iDEN network that include in-building and street-level coverage issues, P2T failures, and delays in text and voice messages. In some cases, users didn't receive messages until two days later.

Rauter said his dispatch group recently met with Sprint Nextel officials, which included area engineers, national grant writers and national-level service people, to address the service complaints. He said company officials gave users tips on how to fix some of the glitches, which included rebooting the devices once a day to reconnect with sites to avoid text-message delays. “We are taking their recommendations to heart,” Rauter said.


It appears that investments in the iDEN network are beginning to wind down as Sprint looks to spend another $7 billion this year on Direct Connect services, but primarily on enabling P2T services over its CDMA EV-DO network. In 2006, Sprint announced an agreement to use Qualcomm's QChat solution to deliver a CDMA-based P2T solution this year that will offer similar performance to — and ultimately interoperate with — its legacy iDEN-based service. Sprint already offers dual-mode devices that enable push-to-talk on iDEN and higher-speed data services on the CDMA networks, but the majority of public-safety users strictly use the iDEN network.

Sprint plans to shutter the iDEN network in 2012, although it is hesitant to set that date in stone, Hackett said. In 2007, Sprint completed its rollout of CDMA EV-DO Rev. A technology, which includes a voice-over-IP quality-of-service component that will enable QChat to work with high-speed data applications. The next task is to roll out QChat devices in mid-2008 in select markets. According to Gartner's Redman, a key challenge will be to help end-users delineate between the benefits of iDEN and QChat.

“They need to put together programs, optimize that migration and show the benefits for users,” Redman said.

Hackett said QChat would let Sprint replicate what Nextel was doing successfully early on: selling total solution packages. QChat will enable Sprint to sell more than just voice P2T services. It also will be about one-button data services like push-to-text or push-to-data, such as sending pictures and blueprints.

“We have an incentive as a company to get iDEN users moved over, but more because of the types of solutions we can offer. The data speeds on iDEN will never change [from 14.4 kb/s],” Hackett said. “[But] for customers who are just voice-centric, iDEN will be fine. We are still very focused on those customers.”

Indeed, the last thing Sprint wants to do is give iDEN users the impression that they are being abandoned, Hackett said.

“We want to be coming out with technologies that are interoperable and don't want customers to feel like they are left in the lurch. We are working to educate customers and make them aware we are coming out with new technologies that allow the iDEN and CDMA networks to communicate with each other. … We want them to make decisions with full disclosure,” he said.


Amid the turmoil that Sprint has been feeling with the exodus of iDEN users, the company's activist stockholders are concerned about the capital expenditures Sprint expects to incur on WiMAX technology in the 2.5 GHz band. Ending the project is out of the question for Sprint because it has passed the point of no return in terms of its commitment.

One main factor has to do with the fact that Sprint promised the FCC it would roll out wireless broadband service in the 2.5 GHz band. In return for the FCC agreeing to let Sprint keep the vast amount of 2.5 GHz spectrum it gained through its merger with Nextel, Sprint Nextel promised to offer wireless broadband to at least 15 million people within four years and another 15 million within six years.

The nascent technology, primarily driven by Sprint in the U.S., has been launched in three initial markets — Baltimore, Chicago and Washington, D.C. — but it's unclear how aggressive Hesse is going to be with rolling out the technology this year.

Moreover, Sprint's WiMAX plans were dealt a blow in late 2007 when Sprint and Clearwire, a broadband wireless company started by cellular mogul Craig McCaw, terminated their letter of intent to jointly build and operate a nationwide mobile WiMAX network using the companies' complementary 2.5 GHz spectrum assets.

Under the agreement, Sprint was to focus its efforts primarily on geographic areas covering approximately 185 million people, including 75% of the population in the 50 largest U.S. markets, while Clearwire was to focus on areas covering about 115 million people. An anticipated rapid buildout promised to push down the economies of scale for network equipment and spur consumer electronics companies to embed WiMAX in a plethora of devices. Indeed, many vendors jumped into the WiMAX market since that deal was announced in July 2007, looking to capitalize on the expected rapid deployment of mobile WiMAX.

However, analysts now say the termination of the Sprint deal will result in fewer WiMAX networks being built in 2008 and will likely dampen Clearwire's enthusiasm for building such networks.

“As a financial resource, WiMAX is a black hole for Sprint,” said Ken Hyers, an analyst for Technology Business Research. “It's $5 billion that could be spent on building the iDEN network or on the rebanding process. … It's a major distraction for the company when it is trying to correct its fundamental problems. The best and brightest engineers are focused on WiMAX.”

To appease worried investors, Sprint's Hesse may opt to look for partnerships, even a private-equity buyout of the business, analysts say.

But Lars Johnson, vice president of business development with WiMAX chipset vendor Beceem, which is a supplier to Sprint, says the operator's rollout of WiMAX is something the company must do to avoid becoming marginalized in the mobile industry.

“If they just look at the current business, they may stop the bleeding, but then they will look like the little brother in the industry,” Johnson said. “They just don't have the scale to compete effectively with AT&T and Verizon. A me-too network is nothing outstanding.”

Indeed, Sprint is moving ahead with WiMAX despite the uncertainty of the business. During the Consumer Electronics Show in Las Vegas last month, the company announced it was working with a number of vendors to launch service this year. The vendors range from billing companies to device partners.

So far, Sprint's WiMAX plans center on the consumer market. Its plan is to be a mobile broadband provider, encouraging device makers to embed WiMAX chips and sell them without a subsidy from Sprint. Sprint envisions WiMAX devices ranging from laptop computers to digital cameras.

But the biggest question remains: If they build it, will customers come?


Dec. 2004
Sprint and Nextel announce intent to merge.

Jan. 2005
Analysts anticipate the new Sprint Nextel will lead the industry in ARPU and innovation.

Feb. 2005
Sprint Nextel agrees to 800 MHz rebanding plan brought forth by the FCC.

June 2005
Sprint Nextel begins rebanding plan.

July 2005
Sprint Nextel begins buying Sprint and Nextel affiliates to settle squabbles over non-compete clauses.

Aug. 2005
Sprint Nextel shares trade at a premium.

Aug. 2005
Merger is completed.

Jan. 2006
Sprint Nextel lowers earnings estimates amid integration and acquisition of several affiliates.

Feb. 2006
Sprint Nextel announces plans to cut 2400 positions as fourth-quarter profits drop.

Aug. 2006
Sprint Nextel reports disappointing second-quarter results; profit falls 38%.

Aug. 2006
Sprint Nextel announces intention to deploy mobile WiMAX on a national basis in the 2.5 GHz band.

Aug. 2006
Sprint President and COO Len Lauer leaves amid poor financial results.

Aug. 2006
Capacity crunch hits iDEN network as Sprint Nextel pushes Boost service, its P2T consumer brand.

Oct. 2006
Third-quarter profits plunge 52%.

Oct. 2006
Sprint Nextel announces agreement with Qualcomm to deploy QChat over EV-DO Rev. A.

Oct. 2006
Sprint Nextel seeks an extension on the 800 MHz rebanding schedule.

Dec. 2006
Sprint Nextel chairman and former Nextel president Tim Donahue retires; Gary Forsee appointed new chairman.

Jan. 2007
Sprint Nextel names key WiMAX suppliers, begins WiMAX evangelism.

Jan. 2007
Company announces intention to lay off 5000 employees after loss of 300,000 subscribers in the fourth quarter of '06.

April 2007
Shareholder activist Ralph Whitworth turns his sights on Sprint Nextel.

May 2007
Sprint Nextel continues to lose customers in the first quarter.

July 2007
Sprint Nextel and Clearwire agree on joint WiMAX buildout to reduce construction costs.

Aug. 2007
FCC steps up pressure on Sprint Nextel over 800 MHz rebanding effort.

Oct. 2007
Chairman and CEO Gary Forsee steps down; WiMAX strategy in question.

Nov. 2007
Sprint Nextel announces more customer losses and falling profits for third quarter.

Nov. 2007
Sprint Nextel and Clearwire terminate WiMAX pact.

Dec. 2007
Sprint Nextel names Dan Hesse president and CEO.


As if Sprint Nextel didn't have enough problems surrounding its push-to-talk service, QChat technology, which Sprint is licensing from Qualcomm to deploy P2T services over its CDMA EV-DO high-speed data network, is now part of the patent fight between Qualcomm and Broadcom.

A federal judge in California issued an injunction Dec. 31 against Qualcomm stemming from its infringement of three Broadcom patents. The injunction prohibits Qualcomm from making, using and selling chipsets and software that infringe on the patents. Specific actions that are prohibited include entering or fulfilling product orders; setting, determining or approving terms of sale; writing, modifying or updating software; developing or modifying circuits; writing, modifying or updating hardware description code language; and preparing documentation for the infringing products, Broadcom said.

Though the injunction covers chips that support Sprint's QChat technology, the judge's ruling provides a “sunset” provision that stays the order until Jan. 31, 2009, for QChat and other CDMA products that were found to infringe on Broadcom's patents. Qualcomm must pay to-be-determined royalties for selling the products.

Despite the ruling, Sprint doesn't see a delay in the rollout of QChat, which is slated for select markets in the middle of this year. But Ken Hyers, an analyst for Technology Business Research, argues that the infringement could put a cloud over potential enterprise and public safety users who see an uncertain future for QChat.

“If I'm an enterprise looking to migrate to CDMA, I might see a lot of question marks hanging on Sprint,” Hyers said.
— Lynnette Luna