The Hesse era at Sprint was a 7-year struggle with Nextel and bad network decisions

In October 2008, Sprint’s(s s) new CEO Dan Hesse stood on an outdoor stage in Baltimore’s Inner Harbor holding an Ethernet cable. Brandishing a pair of hedge clippers, Hesse’s CTO Barry West sliced through the cable — a pretty obvious metaphor for cutting the internet cord. Just 10 months after taking over Sprint, Hesse was presiding over the launch of Sprint’s new Wimax network and supposedly heralding the age of 4G.
The even-mannered but outgoing CEO looked at ease at the staged event, but Wimax wasn’t a technology that Hesse picked. That decision had been made by his predecessor Gary Forsee, and it turned out to be disastrous choice, bogging Hesse and Sprint down for years as the technology struggled to gain acceptance. But that wasn’t the only bad decision Hesse inherited.
In fact, many of the problems that plagued Sprint in 2007 are the same problems that Sprint faces today: an exodus of customers, a schizophrenic network strategy, and a culture obsessed with the future rather than focusing on the present. And like his predecessor, Hesse is passing those problems along to his successor Marcelo Claure, who will take over Sprint next week.

Networks, networks and more networks

Hesse was probably given one of the hardest jobs in the mobile industry when he moved over from Sprint’s spun-off wireline business Embarq in 2007 to run Sprint proper. Two years earlier Sprint had acquired fellow nationwide mobile carrier Nextel, which triggered a wave of subscriber defections and financial troubles that would plague Sprint all the way up until 2013 when it finally shut down Nextel’s old iDEN network. In an interview with Gigaom in 2012, Hesse admitted that the Nextel merger was mistake.
While Hesse carried the Nextel albatross for his entire tenure, it proved to be the lesser of the problems he inherited. The decision that confounded Hesse throughout his tenure was Wimax.
Wimax was a mobile broadband technology heavily promoted by the Intel and other tech giants as an alternative to traditional cellular systems. It was intended to put Sprint on the cutting edge of the mobile data revolution while its competitors waited for LTE to emerge from the standards-making process.
The problem was Sprint was in dire financial straits after the Nextel acquisition. It couldn’t afford to build the network. After launching Wimax in three cities, Hesse turned Sprint’s 4G networks and its spectrum over to Clearwire, which had funding from a range of tech players including Google(s goog) and Intel(s intc).
The move effectively put Sprint’s mobile broadband future into the hands of a company Sprint didn’t directly control. When Clearwire also started to suffer financially during last decade’s recession, its network construction ground to halt with only a third of the U.S. population covered. Verizon(s vz) and AT&T(s t) accelerated their LTE deployments and quickly lapped Sprint in both 4G coverage and capacity.
As support for the Wimax standard collapsed globally, Sprint was forced to swallow its pride and commit to LTE. But because of its entanglements with Clearwire, it couldn’t just shut down the network and start over. That led to a network situation that bordered on the absurd. For more than a year Sprint was maintaining service over four different network technologies — CDMA, LTE, Wimax and iDEN – spread out over three different frequency bands.

Hesse’s Network Vision is hardly 20/20

In December of 2010, Sprint decided to scrap the networks it had and build everything anew under an ambitious program called Network Vision. The idea was to create a next-generation network infrastructure on which it could use any 2G, 3G or 4G radio technology. And last year, it launched the beginnings of Spark, its 4G network to end all 4G networks.
As with past Sprint network plans, the project was technologically daring, but Sprint again succumbed to its tendency to delay and dawdle. Nearly four years later Network Vision is still not complete, and Spark is still in embryonic form; only the city centers of 27 markets are seeing a Spark signal. What’s more, all of the big technical advances that promise to make Spark a killer network aren’t yet deployed. They won’t come until late 2014 or next year – assuming there aren’t further delays.
[pullquote person=”” attribution=””]You can’t say Hesse’s reign at Sprint has been a success, unless your measure for success is keeping Sprint out of bankruptcy and complete financial insolvency.[/pullquote]
Meanwhile, Verizon(s vz), AT&T(s t) and a newly invigorated T-Mobile(s tmus) continue to strip away at Sprint’s postpaid and prepaid (once Sprint’s great strength) subscribers. Complaints about Sprint’s network coverage, availability and speeds are mounting as the dust kicked up by its network construction takes its toll.
Here’s a very telling fact about the Hesse era: When Hesse took over the reigns Sprint had a total of 53.8 million subscribers, 76 percent of which were valuable postpaid subscribers. At the end of the second quarter – Sprint’s fiscal Q1 – Sprint had 54.6 million subscribers, but the number of postpaid connections had fallen to 54 percent.
In the last seven years we’ve experienced enormous growth in the U.S. mobile industry driven by the smartphone and most recently the tablet, but Sprint has barely ticked up in size.

Judging Hesse’s tenure

You can’t say Hesse’s reign at Sprint has been a success, unless your measure for success is keeping Sprint out of bankruptcy and complete financial insolvency. But I would argue that many of the problems Hesse was forced to contend with weren’t of his own making.
The decisions Forsee and the Sprint board made in the years prior to Hesse taking had disastrous consequences. Even the move to give up Sprint’s 4G assets to Clearwire was set in motion before Hesse arrived at the helm.
What’s more, Hesse didn’t get much support from its current owner, Masayoshi Son’s SoftBank. Hesse has long been hampered by Sprint’s financial problems and its love-hate relationship with Clearwire, but SoftBank’s purchase of Sprint and Clearwire was supposed to solve those problems. Sprint would have the financial backing of the Japanese telecom giant, and once again its 4G destiny would be its own.

After SoftBank CEO Masayoshi Son took ovr Sprint chairman he immediately started looking for toward the next acquisition opportunity (KAZUHIRO NOGI/AFP/Getty Images)

After SoftBank CEO Masayoshi Son took ovr Sprint chairman he immediately started looking for toward the next acquisition opportunity (KAZUHIRO NOGI/AFP/Getty Images)

But instead of buckling down to focus on preserving customers, innovating new service plans and building its long-delayed miracle network, Son immediately started looking toward the next acquisition. Hesse couldn’t commit fully to building up Sprint with Son angling to buy T-Mobile since the Sprint of today could be radically different than a combined Sprint-T-Mobile of tomorrow. What made matters worse was the Son’s quest was almost quixotic given the current regulatory attitudes toward consolidation among the nationwide operators. Sprint basically just gave up a year of its new life on this fool’s errand.
That’s always been my biggest beef with Sprint. It never seems to live in the present. It’s always looking ahead to the next acquisition, to the next auction, to the next technological advancement – if it could just overcome this one hurdle all of its problems would be solved. Looking to future isn’t a bad thing, but in Sprint’s case, it created a kind of stasis in which it refused to cope with its current situation.
Hesse certainly can’t be absolved of sharing that mindset. He led the company for seven years. In that time, not only did he fail to solve Sprint’s original problems, he created new ones. But I think that mindset is something much more firmly grounded in Sprint’s culture, and instead of fixing that flaw when he arrived, Son only reinforced it.