Big 800 MHz Decisions Pending for Forsee Successor

Forsee had made completion of the rebanding, which Nextel agreed to before it was bought by Sprint, one of his top priorities. He met with public safety leaders and FCC Chairman Kevin Martin to discuss transition progress. But acting CEO Saleh is a Nextel veteran who was at the company during negotiations on the rebanding order and is knowledgeable about the process. “As to 800 MHz, I don’t think the criticism has been just ’totally change direction and just give it up,'” said Blair Levin, analyst with Stifel Nicolaus. “It just you've got to get it done. You've got to get it done more efficiently… There are some questions on Wall Street about what’s the right strategic direction on WiMAX, et cetera. I don’t anticipate a major change of direction on 800 MHz.”

Levin said Sprint is committed to completing the rebanding, given its commitments to the FCC. “There’s been way too much water under that bridge to change direction,” he said. “Obviously, it could have some impact, but I suspect the machine is moving forward.”

An industry source who closely follows the 800 MHz transition noted that Saleh is the last of the top executives at Nextel still at Sprint and that he had a reputation at Nextel as a good manager who made operations run more efficiently. “I would be hard-pressed to believe that any new CEO would do anything other than reaffirm their commitment to the 800 MHz proceeding,” the source said. “What’s going to be interesting is that in this interim period where Paul is the acting CEO he'll have to decide, and we'll find out any day, whether they're going to file an appeal” the FCC decision. The source said Saleh will be under immediate pressure to cut cash flow. “I do not think that they'll try to limit their cash flow by trying to squeeze public safety,” the source said. “That would put the new chairman under pressure from the FCC. I think the 800 MHz proceeding is going to get almost an instant dispensation.”

But Pali Capital analyst Walter Piecyk said Sprint may take more radical steps, including unbundling the iDEN network that Nextel brought with it to the combination. “I think a new CEO might be more willing to sell the iDEN network and therefore responsibility for rebanding,” he said.

Forsee’s departure also calls into question Sprint’s WiMAX plans, particularly the carrier’s relationship with Clearwire. Forsee was a chief architect behind the Xohm service planned in partnership with Clearwire. Sprint and Clearwire “continue to negotiate in good faith,” a Clearwire spokeswoman said. Despite the company statement, Clearwire has reason to worry since it hasn’t nailed down its WiMAX partnership with Sprint, Jeffries analyst Schildkraut said in an interview. It’s never “great when a mastermind behind a long-term plan leaves,” he said.

Sprint’s board probably won’t change its mind on WiMAX, the analyst said. Sprint “needs” WiMAX to compete, Schildkraut said. “I'm not sure what [Sprint’s] other options are.” Sprint can’t survive without a 4G wireless technology like WiMAX, UBS analyst John Hodulik agreed: “Without 4G, Sprint would be relegated to the role of value- based provider, a situation that would not build value for shareholders.” And Sprint’s board wouldn’t have approved a Clearwire alliance in the first place “were there such grave misgivings about Sprint’s WiMAX plans at the time,” ThinkEquity said. “There have been no material setbacks in WiMAX that could have prompted such a dramatic shift in strategy.”

Sprint should either work with Clearwater and then buy it, or spin off its wireless broadband assets to the partner, Schildkraut said. No other alternative would give Sprint the same value, he said. Hodulik didn’t take up acquisition prospects but agreed that “build out requirements force the company to either move ahead or sell the spectrum,” he said.

It’s more likely that Sprint would buy Clearwire than carve out and sell its wireless broadband assets, Schildkraut said, claiming “buying at even twice the price could be worth it.” A merger would be a “one plus one equals three” deal -- a cheaper way to buy spectrum than winning it in an auction, he said. A Sprint asset spinoff to Clearwire would mean Sprint’s losing backhaul and the WiMAX distribution channel it set up, and Clearwire’s losing added value from the superior Sprint brand. Selling WiMAX spectrum would be a bad call if Sprint hopes to differentiate its wireless service from rivals’, Hodulik agreed, citing the “eroded” value of push-to-talk and “lack of faith” in Sprint’s cable joint venture.

Forsee’s departure probably won’t hurt global WiMAX deployment, Schildkraut said. Motorola and Intel are big industry players that have invested in Clearwire. Meanwhile, AT&T recently announced plans to use 2.3 GHz spectrum for WiMAX, he said. WiMAX rollout is increasing around the world and shows no signs of slowing down, he said.

Analysts were quick to pitch business-saving solutions to Sprint after the management shake-up. Sprint should sell its lagging long-distance business, Global Markets Group, Hodulik said. The business is “running the carrier for cash,” demanding significant resources for its sales force, product development, network maintenance and other aspects, he said. Verizon, Qwest and Level 3 would probably be interested in buying the unit, although Sprint’s cable relationships could “complicate a sale to a Bell,” he said.

Sprint should also try to speed up the conversion of Nextel users from iDEN to Sprint’s faster CDMA network, Hodulik said. About 36 percent of Sprint’s customers are on the iDEN network and can’t buy 3G services available to CDMA users, he said. Costs could be steep for such a conversion and success would depend on the business outlook for QChat, Sprint’s CDMA-based, push-to-talk replacement, he said. Sprint would need to “heavily subsidize CDMA QChat phones,” “invest more heavily in its CDMA network to prepare for the spike in traffic,” and “invest in customer service to prepare for higher volumes in its call centers,” he said.

Sprint should improve marketing to add subscribers, Stanford Group said in a note. “The new CEO should have a strong background in marketing and turnaround expertise,” it said. “Sprint has valuable assets but needs to put in place a more effective marketing strategy and execute operationally.”