« Ring! Ring! Hot News, 21st January 2008 | Main | Open Internet Access on Mobile - framing our thoughts »

Sprint-Nextel: 1.0 thinking in a 2.0 world

As you may have read in our news post this week, as well as elsewhere, Sprint-Nextel is in deep trouble. Since this is a story that has been well-covered in the industry press, we’ll just briefly recap the main points, but dig deeper into the business model aspects.

The basic facts of the situation are:

  • Sprint grew up with three lines of business: local access, long distance networks, and mobile networks. It pursued a “One Sprint” strategy to try to cross-sell these before giving up, spinning off the local division as Embarq, and re-focusing on the core wireless business (with added enterprise appeal from Sprint’s long distance network). Combined with the Nextel merger (see below), this “Grand Old Duke of York” approach to business strategy demoralises the troops as they are marched up the hill only to be told to march down again.
  • Verizon and Cingular were making headline-winning numbers every quarter with net additions to their network. Sprint turned to, ahem, sub-prime users to try to beef up its numbers. This led to a bad debt disaster. (Sound familiar?)
  • At the same time, Sprint made several execution errors. Specifically, a massive write-off on a new billing system (that none of the customers cared about), and a disaster around customer care. The “micro metrics” driving behaviour of customer service reps were wrong, leading to customer dissatisfaction. And the “macro metrics” that focused on cost saving also killed the long-term value of the brand — some core activities were outsourced to IBM, in a relationship that was never easy to manage. Too many customer care reps were based in India and simply didn’t care whether the caller was happy or not.
  • Nextel’s success was based on it’s excellent push-to-talk application, giving it high ARPU and low churn. This turned a disadvantage (i.e. poor trunked radio spectrum) into a true advantage and differentiator. It’s a textbook example of the benefits of vertical integration, with Motorola providing a total solution of handsets, network, and application services. However it was in a technology dead-end due to their technology roadmap having no obvious next step. They were also short of spectrum and capital to build another nationwide network. Thus the merger of unequals.
  • Finally, no matter what the strategy, execution matters. Tomi Ahonen has one of the more colourful write-ups of the most recent PR fiasco where rather than apologise, Sprint offloaded customers who complained too much about the products and processes being broken.

That was the Business Week way of looking at the sources of Sprint’s predicament. What about the business consultant angle?

Well, we can go back to our textbooks and see that Sprint and Nextel had fundamentally different business models.

Sprint has in the past been a product innovator and technology leader — from the fibre-powered “crystal clear” long distance network, to the (failed but before-its-time) ION home service, to the all-digital CDMA network. It was the first to market with voice recognition dialling, wireless web, picture messaging, and plenty of other services.

Nextel’s business was one based on customer intimacy. It had a very well-defined target demographic, principally blue-collar workers and highly mobile clerical staff. The product lent itself to team use, and thus the sales and support process was frequently different to a standard family plan or large enterprise deal.

When you mix oil and water you get, well, just oily water and watery oil. Sprint and Nextel’s different cultures live on in what are effectively two independent entities, now requiring either strength-sapping immune therapy to merge completely, or surgical separation despite some shared vital organs.

Looking more specifically at the strategies for a Telco 2.0 world, how did they fare?

One part of the business is certainly headed in the right direction, albeit slowly. Sprint has had a healthy MVNO business, spreading the risk of capital investment. The Clearwire co-operation is also a step in the right direction. Lacking the scale and Baby Bell regulatory advantages of AT&T and Verizon, this approach needed to be pushed harder. Sprint needed to take a far more radical and aggressive approach to sharing capital investment. The network assets could have been hiving off network assets into a common entity, and getting more cash from cable, content and municipal co-owners made a priority. Google shouldn’t be investing in 700MHz spectrum, but in an mutual industry-owned wholesaler.

As a product company, Sprint really lost its way when lots of the founders cashed out during the failed Worldcom merger. It’s supposed to be Sprint PCS — Personal Communication System. The idea was to be about people and communication. By the time PCS Vision was launched, it was about downloads, games, and music. The “content is king” siren call claims another victim. Nobody in the industry seemed to draw the obvious conclusion from Nextel’s success — make it easy to get in touch and chat with each other. Rather than use the faster IP networks to deliver video clips of Paris and Britney, use it to enable new messaging applications. Visual voicemail should have been old news five years ago.

We’ve covered off the pipe and product aspects of the Telco 2.0 stack, but what about being a platform company? This is in a way the saddest part. Sprint made a real effort to create an open application platform back in 2002-3. I’ve got the developer conference t-shirt and wheely bag to prove it. The project was canned in a bought of corporate in-fighting and acrimony. Nextel had a vibrant developer community, which Sprint failed to maintain. The staff left, the developers departed.

As Sprint bulked up (with the purchase of Nextel) they didn’t execute in the integration or exploitation of the Sprint wholesale platform. Assets like the backbone network failed to become the bedrock of a winning content distribution business. Forays into home networking were sporadic and inconsistent. Then when Sprint proposed a WiMax future, it just took focus off the execution and integration task to hand.

Sprint should have been the ultimate personal communications and content platform, with the capital risk spread across many retail brands and partners. Instead everything depended on Sprint’s own marketing and customer service teams getting it right. Which didn’t happen.

Meanwhile Verizon had put it’s M&A effort in years earlier, and already fully integrated the networks earlier in the decade and were just buying smaller assets for network in-fill. AT&T did a near text book integration between AT&T Wireless and Cingular. And T-Mobile re-grouped itself, stopped Jamie Lee Curtis ever getting to offer the 40,000 minutes a month plan before it was too late, and successfully rebranded itself around a more youthful segment and funkier handsets.

Game over, really.

Our prognosis? Wait to see SK Telecom buying the assets and using Sprint as a testing ground for Korean WiMax…

To share this article easily, please click:

Post a comment

(To prevent spam, all comments need to be approved by the Telco 2.0 team before appearing. Thanks for waiting.)

Telco 2.0 Strategy Report Out Now: Telco Strategy in the Cloud

Subscribe to this blog

To get blog posts delivered to your inbox, enter your email address:

How we respect your privacy

Subscribe via RSS

Telco 2.0™ Email Newsletter

The free Telco 2.0™ newsletter is published every second week. To subscribe, enter your email address:

Telco 2.0™ is produced by: