EK Telecom Analysis Newsletter

Author of EKTAN Accepted into GLG Leader Program

Yes, it's self serving and I've been away and busy for the past couple months, but I wanted to share that last week I was invited into the GLG Leader Program, based on my work with Gerson Lehrman Group Clients. Only Council Members who achieve a CouncilRank™ in the top 5% of the GLG global network are eligible to join this elite program.  I'll try to have the GLG widget on the side of the blog updated soon. 

There's a lot happening in telecom these days, especially with Sprint Nextel.  I'll try to get some thoughts up there in the coming week.  It looks to me like it might be possible for some imminent news forthcoming regarding the iDEN network. 

Sprint Nextel Watch: A Twelve Month Strategic Prognosis (with correction)

Correction (June 4, 2008): In the analysis below, the first claim in the "selected Pros" section is wrong.  In taking notes on the Sprint 1Q08 earnings call, I mistakenly heard CEO Dan Hesse say that an iDEN / WiMAX Blackberry device would be delivered this year.  In reality, Hesse said am iDEN / WiFi Blackberry device would be delivered later this year.  This mistake was pointed out in a comment by "idenguy" on Seeking Alpha.  I do not know who "idenguy" is, but I thank him for the correction.  The implications of my mistake on my analysis is that, while iDEN might indeed prove to be a logical underpinning voice play for Clearwire in a bundled spin from Sprint, the product or handset foundation supporting such a scenario remains to be built.  I still believe that a long term future of iDEN under Sprint ownership will be hard to justify, given the inability of iDEN technology to evolve to any form of broadband.

Related Links:

Bucking the Wind To Rebuild Sprint
UPDATE 4-Sprint's loss widens, sees slow improvement
Sprint customer satisfaction keeps dropping
D-Block comments begin rolling in

Summary

Sprint's current state of the business and challenges combined with externalities will determine the fate of Sprint over the next twelve months. 

Analysis

It's been a few weeks since Sprint Nextel's 1Q08 earnings call and there seems to be a lull in any dramatic or negative news announcements.  Sprint's debt has been rated junk, but that news was expected.  So, without recapping all recent events (e.g., Clearwire venture), now might be a good time to take a breath and list some pros, cons, and facts that might provide some insights to the future. 

First, some selected Pros: 

1. WiMAX / iDEN Blackberry device to be delivered later this year:  If there were doubts iDEN were to live, the announcement of this device, along with increased media spending for the iDEN network, and CEO Dan Hesse's 1Q statements supporting iDEN, add more to the credibility that:  a) iDEN will not be shut down, b) iDEN customers will have a broadband solution, c) the unspoken strategy of having a forced migration of iDEN subscribers to CDMA is less likely, d) a spin of the Nextel / iDEN network to the Clearwire venture is more plausible with a dual mode WiMAX device on the roadmap.
2. ARPU at $56:  I'm putting this in the Pro column, because it's the highest among the major carriers (VZ:  $51.40, AT&T: $50.18, T-Mobile:  $55, Alltel:  $53.64) and is testimony to the strength of CDMA data ARPU, which is $14.
3. Management:  Although additional changes should have been made at the senior level and below, not to mention at least one more person at the board level, overall, there are positive changes afoot.

Now for some selected Cons: 

1. and 2.  Churn and Customer Satisfaction:  Both remain persistently poor, especially customer sat.  Despite Sprint's claims of improvement in customer sat during the quarter, at least one index places Sprint substantially below the competition.  Although so many factors influence churn, such as network reliability, RF coverage, features, handsets, apps, etc., the customer experience with care and at the retail level is one where Sprint appears to continue to disappoint in a big way.  The customer experience is the single biggest hurdle to overcome in Sprint's turnaround and is the primary reason for continued poor churn and net add performance, despite having finally gotten a handle on network and billing issues. 

Now for some selected factoids (mostly from the earnings call):

1. iDEN has 3 million public safety customers, as of 1Q08
2. iDEN postpaid subscribers are 12.3 million, 15.7 million including Boost pre-paid, with an additional 1.6 million Power Source subs (these are dual mode iDEN PTT / CDMA voice and data phones).  The iDEN network would appear to have quite a ways to go before it gets below the 10 million sub mark.
3. iDEN ARPU is below $56; CDMA ARPU  is above $56.
4. D-Block Revision process is just under way (this was not on the earnings call)

Based in part on the above, some linear logic, prognostications and bold predictions:

• As stated above, the foundation continues to be built to support a potential iDEN spin to the Clearwire WiMAX entity.
• It will take several more months for Sprint customer sat and churn to stabilize, perhaps 4Q08.  If there's no improvement by then, expect continued deteriorating performance and, if no spin off of iDEN, cash problems.  
• Wide commercial rollout of Qchat and interoperability with the iDEN base starts late 4Q08. 
• A Nextel spin (or semi-spin into a JV, similar to the Clearwire structure), if it happens, will be late 4Q08 / 1Q09.  If the iDEN subscriber base and overall customer sat has stabilized, then Sprint will be in a relative position of strength.  If not, then an iDEN spin will be a distress sale.  The timing of late '08 / early '09 also presumes that by that time, D Block rule making concludes and settles.  There will probably be no iDEN spin to support any public safety purpose until at least the D Block rules are finalized or the block is re-auctioned.  Any potential suitor interested in iDEN for public safety that might in any way be related to Cyren Call would be would never jeopardize or complicate the D Block license process with a premature bid for Nextel, unless blessed by the FCC.

Conclusion
Sprint has some positive underlying strengths, but the road to recovery will be long and take many more months.  The moment when a number of factors that will determine Sprint's future structure will come together nine to twelve months from now, as Sprint's ability to function acceptably with the most basic level of customer care as a wireless provider will reach its moment of truth.  Externalities comprised of suitors  that will finally be ready to make a move for either piece parts or the whole of Sprint will drive this ongoing Sprint saga to resolution. 

iPCS and Sprint: A Short Lived Detente

Related Links

Sprint affiliate sues to block Clearwire deal
iPCS Reaches Detente with Sprint Nextel
Sweet Victory for iPCS

Summary
Trying to figure out the iPCS - Sprint relationship raises some puzzling questions.

Analysis

It's hard to figure out the exact motivation behind iPCS's recent legal action against Sprint to block Sprint from forming its joint venture with Clearwire et al.  As an affiliate, one would have thought that, in light of having recently come to agreement with Sprint over backoffice and roaming fees and the judgment in iPCS's favor on its exclusivity infringement claims regarding Nextel, that an equilibrium had been reached.

One would have also thought that, as an affiliate, iPCS could have offered or negotiated a WiMAX reselling agreement with Sprint.  Afterall, isn't WiMAX competing with Sprint's own CDMA data network as much as iPCS's?  Or, did Sprint, in seeking a pre-emptive declaratory judgment regarding Clearwire holdings in one of iPCS's largest markets, Grand Rapids, essentially pick the scab of the healing wound to cause the relationship to again bleed?  Finally, if iPCS is making a play to be acquired by Sprint, could they have picked a worse time to try to force Sprint's hand, given the financial, operational and strategic basket case that Sprint has become?

Sprint Nextel Watch: Vultures Are Already Inspecting the Sprint Carcass (with correction)

5/12/08:  Not sure if the folks are RCR read my blogs, although there is one staffer there on my distribution list, but this cartoon by Chris Boyer of RCR was published on May 9, 2008:

See addendum (5/9/2008) at the bottom of this piece.

Related Links:

Sprint in M&A play, shares surge

DT & Sprint: A Bargain in the Balance?

T-Mobile USA to get rolling on 3G

Behind T-Mobile's customer service success

Managing rollout delay

 

Summary

Sprint Nextel's market capitalization has surged about $9B to over $26B or by more than 50% over past three weeks as of the end of trading, May 6, 2008, most recently based on speculation that big changes are in the offing.  The market and investors seem to be waking up to the idea that the piece parts of Sprint really do add up to more than the whole.

Analysis

How a DT Bid Might Work

If Deutsche Telecom (DT) makes a bid for Sprint Nextel, as has been reported widely, it will be in large part motivated as a value play.  DT will be betting that, in a worst case scenario, that is, one in which integration of all the different network technologies fails, the remaining assets (spectrum, cash flows from leftover subscribers, facilities, etc.) will be worth the strategic goals of enhancing international expansion, especially in the U.S., to better compete with Vodaphone.  If a DT deal for Sprint were to happen today, DT will likely sell off either iDEN or CDMA and WiMAX, in order to:  1) finance the deal itself, and 2) Eliminate redundant networks.  WiMAX is not on the GSM evolution path and the Sprint version operates at 2.5 GHz, which would not be easily compatible with T-Mobile's AWS auction winnings at 700 MHz and where T-Mobile announced last week that they would be deploying their own 3G services, staying on the LTE evolution path. 

Nextel iDEN Network Is Once Again The Intriguing Asset
Although some might assume that the CDMA network might be the bigger prize, from a T-Mobile point of view, integration of the iDEN network might be easier:  1) iDEN uses a GSM core network that would be compatible with that of T-Mobile (wireless prepaid services based on GSM Intelligent Networks standards, for instance,  might be integrated easier with iDEN), 2) From an RF point of view, at 800 / 900 MHz, the iDEN network might enable easier development of dual mode devices with the T-Mobile 700 MHz spectrum vis-a-vis the 1.9 GHZ PCS CDMA network, 3) iDEN's primarily business customer base might be more complementary to T-Mobile's low cost consumer base, offering a diversification opportunity (the same rationale could have been made three years ago at the time Nextel merged with Sprint).   Lastly, T-Mobile's industry leading customer care practices and methods could accelerate the improvement of Sprint's major weak spot across any and all networks.  On the other hand, Sprint's CDMA consumer-oriented brand and network might strengthen T-Mobile's position in that segment.  That said, the following should be read in neon flashing boldface:  An integration of CDMA and GSM networks has never been successfully achieved.

The bottom line here is that at DT move on Sprint could make sense if we don't get hung up on integration of up to five networks (GSM, iDEN, CDMA, WiMAX and GSM 3G) and focus instead on selling off redundant piece parts to avoid some integration issues, strategic fit, and the value play (although the value part appears to be diminishing as Sprint's stock price continues to spike).

Nextel Going Home?
So, what can be made of the other news that Morgan O'Brien et al may be making a move on iDEN assets, as I've pointed out as a possibility along with other scenarios here, here, and here? Without any inside information, but knowing only the interest and passion (and, no doubt, a degree of self-interest) that Morgan O'Brien has in pursuing public safety solutions, in addition to the intimate knowledge and pride he must have in having built the foundation for the Nextel network, the disclosure of such an interest in using the iDEN network as a first responder network should not be surprising.  As I've blogged on before, Undoing the Merger is doable.

Ironically, in this whole picture, Sprint's CDMA network may end up being the orphaned child waiting for adoption in a breakup of Sprint (Alltel or Mr. Slim, are you listening?) 

How Do WiMAX Delays Figure in the Big Picture?
Waiting for Sprint  to finalize a deal that might spin off WiMAX is like watching a very drawn out Act 2, Scene 2 of Romeo and Juliet, with Juliet (Clearwire and its partners) calling out to Romeo (Sprint) to help take WiMAX away ("Deny thy father and refuse thy name; Or, if thou wilt not, be but sworn my love).  That said, the delays reported in the availability of the WiMAX network probably don't matter in the big picture of a Sprint breakup.  There will be value in WiMAX to Clearwire and the Cable guys, regardless of the outcome of a Nextel spin or DT takeover.  Either way, Xohm can be used to raise cash to finance a deal by an acquirer or by Sprint itself to make itself more attractive to a suitor; Sprint would be one more degree less complicated and therefore, easier to value.      

What Happens If All The Deals Don't Materialize?

The good news is that, if all the vultures lose interest in the Sprint carcass, CEO Dan Hesse appears to have an excellent grasp in evaluating and assessing his leadership team.  Without getting specific, there are early signs that some of the leadership that has embodied the worst of the negative culture on the Overland Park campus has been or is being identified.  There are also anecdotal blips indicating that customer care may be improving.   

With all the drama swirling around Sprint these days that would impress a producer of a Mexican telenovela, and with the unsolicited help and advice being offered to Sprint, I believe that Dan Hesse is quietly and efficiently going about his business.  If all the deals fall through, I believe Hesse has the talent to pull off a turnaround. 

Conclusion

With Sprint being in play, there are only further upside possibilities from either a takeover, split up or operational perspective.  I believe if one more new suitor checks in and registers interest in Sprint or a piece part, all the talk and rumor will turn into hot action very quickly.  Perhaps after the earnings call on May, 12, 2008, we'll see more action.

***Correction***

A key aspect of my analysis contained a glaring factual error, which I should have known.  Specifically, that T-Mobile's AWS spectrum won in 2006 and on which it was announced that they would be rolling out 3G / W-CDMA service, is paired spectrum at 1.7 GHz (uplink) and 2.1 GHz (downlink), rather than at 700 MHz as is stated in my article.  After thinking through the implications of the actual location of T-Mobile's AWS spectrum, I've concluded the following:  1) The AWS spectrum still would not lend itself to be easily compatible or, at least, optimized, with Sprint's 2.5 GHz WiMAX spectrum because, while closer to 2.5 GHz than 700 MHz, the AWS spectrum was allocated by the FCC as frequency division duplex (FDD) rather than WiMAX's time division duplex (TDD) design; 2) Reason "2)" under the heading "Nextel iDEN Network Is Once Again The Intriguing Asset", starting with "From an RF point of view...", is no longer valid; and, 3) Despite the fact that T-Mobile AWS FDD spectrum is close to the Sprint PCS CDMA FDD spectrum at 1.9GHz, I still maintain that Sprint's CDMA network could ironically end up being the orphaned child for the following reason:  Action on whether or not Sprint will be taken over or broken up will happen within the next year.  An LTE rollout /swapout for a hypothetically combined T-Mobile W-CDMA / AWS spectrum  network and Sprint CDMA / PCS spectrum network, is just too far into the future (at least 4 - 5 years) to impact a current decision by DT on whether or not to keep CDMA or iDEN in this scenario.

THOUGHTS AND COMMENTS, 4/28/08

The last newsletter was published on March 28, 2008.  This issue contains four articles, one of which has been reprinted at seekingalpha.com.  My author biography and an index of articles is at:  http://seekingalpha.com/author/ed-ketchoyian. These are practically identical to the articles here at the EKTAN, but at Seeking Alpha, there have been some very interesting comments.   In the last month, my article on Dan Hesse was included in Wikinvest. 

Although I didn't go to CTIA, I've spoken to a number of colleagues who did.  The impression I get from my limited and biased sample is that the show this year was high on professional networking opportunities, but that the wireless industry is lacking a focus on the next big thing.  Notwithstanding the buzz on the ongoing WiMAX vs. LTE religious war, if you are an old school wireless pro from years past, you'd be looking for major announcements that involved spectrum, major infrastructure equipment deals that resulted in commitments of billions of dollars for new or upgraded technology, a blockbuster partnership deal deal, or maybe even an iPhone-type device announcement (iPhone derivatives, such as an iPhone "killer" don't count).  None of which happened, leaving some of the colleagues questioning their own future in the industry. 

Sprint Nextel continues to look for partners to share the cost of the WiMAX rollout, which will undoubtedly cost several billion dollars, but still has no takers.  Given the credit markets being what they are and, for intents and purposes, a recession in place, major deals that might have been possible six months ago, seem like longer shots now.  The prospect of Sprint spinning off WiMAX completely to Clearwire or iDEN or being taken over outright, given the intrinsic value of Sprint's spectrum holdings alone, may not happen now in the short term, due to macroeconomic conditions.  This situation may end up being a blessing in disguise for CEO Dan Hesse and any Sprint Nextel partisans who wish for the company to remain independent; new management gets some breathing room to turn around the company.  Short of transplanting headquarters from Kansas to a location where leadership actually has to care about employee satisfaction because there is a market alternative for good talent (rather than knowing that the best alternative is working for H&R Block, Hallmark Cards, Applebees, McDonald's or back to the farm, which has fostered a culture based on fear for one's job security and having the right political connections over self-initiative), or a wholesale change of entrenched management, it's hard to envision a near term solution to the Sprint malaise with the current lineup.  I continue to be a fan of Dan Hesse and believe he is capable, but turning around Sprint is more than a one or two person job.  If Dan Hesse is successful in turning around Sprint Nextel, then he deserves to be enshrined with Lou Gerstner and Lee Iacocca in the annals of against-the-odds business turnarounds. 

As for the rest of the industry, the big impacts for the future should be, if I'm a vendor, equipment awards from winners of 700 MHz spectrum.  However, since the rollout requirements the 700 MHz spectrum are so liberal, i.e., stretched out over several years starting next year when the television broadcasters cease using the spectrum, any major equipment awards and deployments are still well over a year out and will be stretched for three to four years after that.  Compared to motivated initial deployments of other networks and technologies in wireless industry past that took between eighteen months to three years from the time of spectrum being awarded, I'd be concerned to be a wireless equipment vendor to U.S. carriers from a revenue perspective for the next few years.

So, where's the money?  Will there ever again be a need for the same level of wireless technical field installation nomads, living on the road for almost a year at a time, doing construction work to build greenfield wireless networks when establishing coverage in newly won spectrum was like staking settling land on a new frontier, or will these people be recorded in history in a documentary style that recalls the men who built landmarks like the Golden Gate Bridge, i.e., who existed in a bygone era in the day when making $5 a day was considered good pay?  Being in the field building wireless networks wasn't glamorous work and I wasn't one of them, but I know a lot of people who nevertheless reminisce fondly on those times. 

There's a lot of buzz out there on mobile social networking, location services, mobile video, next generation bandwidth, quadruple plays, ATC, mobile search, mobile advertising, open networks / Android, wireless internet, etc.  These options are so far, for the most part, unrealized promises or "futures".   Whatever the "it" ends up being, I believe it will be something unique to wireless, rather than an adaptation or migration of an existing service or capability from another medium.  "It" will also be something that has unique utility to consumers that will primarily be useful to them when in a mobile state and has limited value if it is substituted by a fixed version.  "It" will also be something that marketers will be anticipate, but that which consumers will decide where the value resides.  My vote for "it" according to this criteria is for navigation and location services.

My stated goal is to publish one article a week.  It turns out that I'm achieving that goal, but on an asymmetric basis, i.e., a burst of four or so articles every three or four weeks.  I'll work on my level loading going forward.  I also intend on republishing some guest articles from analysts I believe product unique, quality and non-widely available analysis.   I'm continuing to mull on the following topics for future articles, besides the popular Sprint Nextel Watch series: LTE deployment issues, 700 MHz post-auction analysis, Motorola, and a suggested topic called Near Field Communications. 

You may have to check the sonicblues.typepad.com every now and then or subscribe to the RSS feed to get fresher material. 

Sprint Nextel Watch: Going Long on Sprint: A Fool's Folly or a Shrewd Investment?

Related Links:

Contrarians Beware: Sprint Nextel Is No Prize

Summary

Based on the intrinsic value of its spectrum holdings and its business operations, Sprint is still a steal at its current market cap.

Analysis

A recent article by Ben McClure in response to my blog post suggesting circling sharks around a wounded and bleeding Sprint reasoned that at the current market cap of around $18B and $6 and change a share this stock is not a good investment for bottom fishers.  Mr. McClure writes:

"At a share price of $6.76, the company has a market capitalization of about $18.8 billion. Let's assign to Sprint Nextel a forward PE ratio of 16, about the same PE ratio attached to Verizon. Based on that multiple, Sprint Nextel will have to produce about $1.2 billion net income or an EPS of 41 cents per share in 2008 if share prices remain constant. Yet, Wall Street earnings estimates say that this number is well beyond reach. Analysts say the company is on track to produce just 8 cents per share in 2008 according to Market Watch."

Clearly, by this reasoning, Sprint, at a PE ratio of 16 and earning of 8 cents a share would indicate a share price of around $1.25.  The underlying argument is that there's still substantial downside risk to Sprint.  If Sprint were to go as low as $1.25 a share, this would equal a market cap of $3.5B!  I'm sure one could construct an argument for the share price going even lower by adjusting the PE ratio to, say, 12, to reflect that Sprint underperforms relative to its peers. 

Another calculation, though, would set Sprint's value much higher, looking at the piece parts.  A rough calculation valuing Sprint's spectrum holdings at $1 per MHz - pop for iDEN spectrum at 800 / 900 MHz, $.75 per MHz - pop for PCS spectrum at 1.9 GHz, and $.50 per MHz - pop for WiMAX spectrum at 2.5GHz, easily yields an intrinsic value of over $10B.  By being even more conservative and downgrading the value of Sprint's spectrum holdings by 20% to $8B still leaves one to argue that, with current debt being factored in, the remaining bricks and mortar, equipment, iDEN, long distance and IP / wireline, CDMA and WiMAX businesses together are worth only $8 - $10B at the current stock price.

By my reckoning, the depressed stock price is in large part due to historically and entrenched (below the  current CEO) decision making, leadership and management, manifested in customers so dissatisfied that they leave the network, despite network quality and reliability being good.  On the iDEN side, dissatisfaction is compounded by ongoing uncertainty of iDEN in Sprint's long term architecture (iDEN has no evolution to broadband), despite well intentioned and genuine best efforts on the part of CEO Dan Hesse to reassure customers that iDEN will be around for the foreseeable future.

Sprint, in the eyes of investors and customers, at this point has approval ratings like the Bush Administration:  They have screwed up in such an extreme manner for so long that the negative sentiment has become so deep-rooted that it's hard to see how any recovery is possible. 

In the case of Sprint, though, it really is hard to see how conditions can get worse.  Hesse has already prepped investors' expectations by forecasting a large subscriber loss for first and second quarter, 2008, as iDEN continues to bleed perhaps unprecedented subscribers in the wireless industry.

Sprint does not have timeto wait for Qchat to become operational over the next year.  Sprint also doesn't have time to wait for the WiMAX build out to mature over the next three years.  I believe that Hesse understands this situation.

The short term key is iDEN.   The problems on the iDEN network are exacerbated  when you realize that when subscribers churn off, they don't do it in one's or two's at a time, but in groups, due to the unique group call capability of push-to-talk that business customers love.  An optimist would see though that group calling is still a differentiated technical capability that Sprint controls with iDEN and Qchat, and that, if Hesse is able to turn around iDEN, then the heavy churn can drop as dramatically as subscribers choose to stay in groups instead of leaving.

Conclusion
When looking into the abyss, it's easy to imagine an infinite drop into the darkness.  On the other hand, the drop may only be a few feet.  I believe iDEN will stabilize before the end of 2008.  When that happens, the emotion depressing Sprint's stock price will burn off and the price will bounce back. So, for now, if a suitor can put together the financing in the current credit environment, now is the time to acquire Sprint. I'm reaffirming my previous position that Sprint is a steal at its current market cap.

 

Sweet Victory for iPCS

Related Links:

Court Supports IPCS in Fight With Sprint

iPCS Reaches Detente with Sprint Nextel

News Update

As I wrote previously, the longstanding feud between Sprint and iPCS had another chapter written on  March 31, 2008, when an Illinois court ruled in favor of iPCS in its longstanding dispute with Sprint over iPCS claims of exclusivity violations resulting from the Sprint Nextel merger.  With this dispute finally over and the new affiliate agreement iPCS signed recently with Sprint, perhaps both companies can focus more on the future and satisfying customers. 

Sprint Nextel Watch: If iDEN is Key to Sprint, Where Are the New Handsets?

Related Links:

Product placement 101: The keynote

Summary

The lack of iDEN only handsets on the immediate horizon gives mixed messages to investors and customers as to Sprint's commitment to the iDEN network.

Analysis

It is troubling that Sprint Nextel announced a plethora of handsets at CTIA, but within these announcements, there were no new iDEN handsets.  Sprint announced new iDEN models when support for iDEN was affirmed early in the first quarter of 2008.  If Sprint were actively reviving iDEN and managing the technology, then couldn't we at least get a peek at the iDEN handset roadmap?  The Samsung Instinct phone announced has a two month overhang until it's available in June.  That implies that there's nothing in the pipleline for iDEN for the first half of 2008. 

Conclusions

The lack of iDEN only handsets on the immediate horizon is puzzling and gives mixed messages to investors and customers as to Sprint's commitment to the iDEN network.

No Sprint WiMAX Deal Announcement at CTIA, No Big Deal

Related Links:

Hesse touts mobile freedom

WSJ: Comcast, Time Warner May Fund WiMax

Summary

The lack of an announced Sprint multi-party deal at the CTIA show is not necessarily a sign that no deal will happen or that negotiations have failed.

Analysis

Speculation and the resulting disappointment on the part of wireless industry pundits and analysts from expectations of a big announcement regarding a blockbuster partnership between Sprint, Clearwire, Time Warner, Comcast, Intel, Google and possibly Brighthouse that did not materialize that this year's CTIA convention in Las Vegas was similar to the wishful thinking and attendant dismay of a child not getting candy in the checkout line.  The "deal" may very well be in the works, and possibly imminent, but there was not much to read into the lack of an announcement at CTIA.  To say that these deals, especially multi-party ones, are complicated, is an understatement.  In fact, we should have been dubious of the deal if it was rushed just to make an arbitrary target CTIA announcement date.  The rush would have made it a bad deal.  The "final" deal, if and when it is announced, should be much more than term sheets; it should be detailed and signed-off and approved at board-level for all involved parties.

Sprint Nextel Watch: Hesse, Continuing to Show Leadership, but Doubts Remain About the Long Term

Related Links:

Sprint Nextel Names Steven L. Elfman as President - Network Operations and Wholesale

Summary

CEO Dan Hesse appears to be focused and decisive.  He's bringing in trusted, new blood to the executive ranks.  He still faces an uphill struggle.  Investors, alienated employees and customers will need persistent and encouraging news to rebuild confidence in order for Sprint Nextel to stay in one piece long term.  However, Hesse continues to earn positive marks for his leadership, regardless of the final outcome. 

Analysis

It's easy to sit back and offer suggestions and criticism on a particular company, especially if you don't have much skin in the game, i.e., your primary livelihood isn't tied to the enterprise.  Dan Hesse continues to make decisive moves.  After years of dysfunction throughout the executive ranks at Sprint Nextel, he deserves credit.  It will still be weeks and months before we know if real changes are starting to take hold, and, indeed, more leadership of the kind we are seeing will be necessary for Sprint to stay whole and / or independent, if that is the goal.  The level of discontent both within and outside Sprint Nextel is unusual, even for a company in distress.  There are unconfirmed accusations by people who claim to be current or former employees of Enron-like fraud. 

That said, Hesse continues to make positive moves.  I've given him kudos in the past for going public with the customer care woes in the Business Week article.  I believe it was a good move for him to personally star in current television ads.  It seems that Hesse understands that the challenges he has are both internal and external.  Most recently, he added Steven Elfman as President - Network Operations and Wholesale.  What's interesting to me in this article is that Kathy Walker, Chief Network Officer, now reports to Elfman. 

It's been a couple months since Hesse's joined the company.  He's had a chance to make initial assessments.  At this point, it doesn't matter whether it was part of the grand plan coming in or something decided after coming on board; Hesse has decided that he needs help.  Elfman is part of Hesse's "army" having worked for him at Terabeam and AT&T Wireless.  Elfman is a trusted, competent and loyal executive from Hesse's past. 

There are three interesting parts to the announcement:

1. President Wholesale reporting to a President (Patterson to Elfman)

2. Chief Network Officer reporting to a President (Walker to Elfman)

3. Product Development and Tech Dev now reporting to Elfman

But for Marketing and Customer Care, Elfman is essentially a COO.  Up to now and in the absence for several months of an official COO, Patterson and Walker reported to the CEO.  It will be interesting to see in the future if and how these peer to peer reporting relationships are resolved.  In addition, with Tech Dev reporting to Elfman, there is an open question as to where the CTO reports.  Previously, the CTO reported to the Chief Strategy person that deposed CEO Forsee brought in. 

Conclusion
The bottom once again is that Dan Hesse appears to be focused and decisive, and continues to earn positive marks for his leadership, regardless of the final outcome. 

Sprint Nextel Watch - UPDATE: How Low Can the Stock Price Go Before Sprint Gets Taken Out?

This week, the Sprint has a market cap that has bumped up to around $18.5B.  The bump happened immediately, almost to the hour, when the 700 MHz spectrum auctions closed.  I originally thought the bump was due to imminent takeover activities.  Today (being a little on the slow side), my belief is that the stock price jump might only be reflecting the final updated market value on Sprint's spectrum, which would still be an input in calculating any breakup price for the company.

EKTAN Feedback on the Web: The Navel Gazing Post

Well, this has been a busy week.  Not for adding analysis and content to the EKTAN, that's for sure.  Rather, it's been interesting to track the two posts, my first "pillar" post of the EKTAN, "One Scenario for Sprint's Long Term Future" and the more recent "Undoing the Sprint Nextel Merger," from the EKTAN that I've made to Seeking Alpha.com.  I've submitted a third article also that will probably hit the web site in the next day on the "How Low Can The Sprint Stock Go" post.   In this post, I wanted to repeat a smattering of where these articles end up, once they get posted on analysis sites that get real traffic and some comments and feedback.

As of now, the "Undoing" article has received 27 comments on Seeking Alpha.  There's been a very interesting debate, some of it logical.  Same thing for the "One Scenario" article, which received 16 comments.  All of these comments include those from a particular profane and emotional Sprint defender, who has had at least one offensive and vulgar comment deleted at my request. 

The day that Undoing was posted on Seeking Alpha, Contributing Editor Gary Kim, of TMCnet.com, picked up on my piece, wrote an article on it, titled, "Could Nextel be Spun Off?" and referred to my post.  Thank you, Gary. 

If you go to Yahoo Finance and get a quote for Sprint, you will see the "Undoing" Seeking Alpha article in the blog section.

Also, on Yahoo message boards, someone pasted my "One Scenario" article there, to which a thoughtful poster commented the following (edited for space):

I'm sorry but Ed Ketchoyian needs to take off the rose colored glass and put down the pipe. His basis and conclusions are all over the place and just simply incorrect.   Anyone with half a brain and that knows anything  about the wireless industry can pick this "article"  apart.    SN will not spin off  iDEN.  SN will not spin off WiMax (they will gain outside  investment).  SN will not be bought by VZ, regardless of voice 4G  path.  Sometimes Seeking Alpha articles need to be taken  with a huge dose of  salt.

My pipe has been unused for several years.

The articles were also picked up by FinanceMart,CNBC.com, Wikio News, and a site that indexes blogs based on some key words.  In this case, the word "abscess" was picked up and the "One Scenario" article was listed with a bunch of medical articles describing the different kinds of abscesses you can develop on your body.

"Undoing" also somehow got listed on Social Picks. 

Clearly, many of these sites pick up the feed from Seeking Alpha. 

EKTAN Debuts on Seeking Alpha

I just wanted to let you all know that I submitted my first blog article A Sprint Magical Mystery Tour: One Scenario for the Long Term Future to the website Seeking Alpha.  The article can be found here.  If you haven't been referred to this my blog from Seeking Alpha, I recommend checking out some of the lengthy and interesting comments that some readers have made on the article at Seeking Alpha.

There were some negative comments initially, but then I noticed some of the naysayers were people who defend Sprint and put down other people who write about the company in order to diminish their credibility.  I've been on the chat boards for many years, including the political ones, so I'm familiar with this particular breed.  It's funny, because there's also the opposite side as well.  All my article does is provide a canvas for these ongoing battles to continue. 

Anyway, those were the initial comments.  There were more lengthy and thoughtful comments as well and these are the ones I recommend checking out. 

Sprint Nextel Watch: How Low Can the Stock Price Go Before Sprint Gets Taken Out?

Related Links:

Sprint Nextel Fate Source of Speculation

Sprint Falls Amid Downbeat Analyst Notes

As auction wanes, public safety weighs its options

Tim Donahue Letter

Deal Yenta: A Mexican Rescue for Sprint?

Summary

There are lots of possibilities and scenarios for Sprint to be in play at its current market capitalization and stock price.

Analysis

With a market capitalization as of this writing hovering around $17B, Sprint Nextel is certainly a company in deep distress and, may be a steal for the right suitor.  Regardless of the initial positive leadership shown by CEO Dan Hesse in these early days of his tenure, with a stock price hammered to the $6 range, the Street may be betting that even a good captain would not be able to save Jack and Rose, I mean, the Titanic, from inevitable disaster. 

The underlying intrinsic assets, such as Sprint's spectrum holdings, internet backbone and still positive cash flow  from the dwindling post-paid customer base, may also lead one to the conclusion that, at this point, Sprint's breakup value might be higher than the whole.  As an analogy, it might be instructive to think of Eddie Lampert's play for a depressed at the time Sears.  Mr. Lampert was correctly able to understand where the intrinsic value was for Sears (in its underlying real estate holdings), where others focused too much on poor operations.

As mentioned in my previous Sprint Nextel Watch analysis, there may be more suitors than meet the eye, especially for the piece parts.  A selected list of scenarios could be the following (not in priority order):

• Clearwire / Craig McCaw / Intel / Google buys Sprint's WiMAX business and, potentially, the iDEN network. Rationale:  VoIP on the WiMAX network might not be available in handset devices for a few more years.  A WiMAX / iDEN dual mode device play would give a standalone WiMAX entity a differentiated voice offering until VoIP devices are available.
• Public Safety Spectrum Trust (PSST):  This group might be comprised of any combination of Morgan O'Brien, other ex-Nextel executives swimming around the Northern Virginia ecosystem, Tim Donahue, and private equity players.  The aim would be to buy iDEN and use it as an interim public safety / first responder system.  iDEN today does not fulfill the full feature requirements set for public safety, but, assuming the 700 MHz D-Block has no takers, then iDEN may be the next best short term alternative.
• Alltel or Verizon:  The scenario here is that either company (in the event Verizon does not win spectrum at 700MHz or Alltel in any case) purchases Sprint on the cheap and spins off iDEN and / or the WiMAX Xohm business to pay for the deal.  Verizon can pass Justice Department and / FCC muster in the case of AT&T or Google winning the C-Block AND by divesting iDEN.
• Tim Donahue and the undisclosed management team he had previously assembled as part of the SK Telecom, Providence Equity syndicate in a bid to invest $5B in Sprint around last Thanksgiving. That $5B bid would have bought about 11% of the company back then based on market capitalization.  Based on today's market cap, that $5B alone would be enough to own 30%. 
• Mr. Carlos Slim:  Buys Sprint, spins off iDEN.  On the other hand, Nextel International (NIHD) is a scrappy, pain in the butt competitor to the larger Mexican carriers the way pre-merger Nextel used to be.  A Slim purchase of Sprint and holding on to iDEN could have a dual purpose of cutting off NIHD in the home Mexican market AND gaining entree into the U.S.  I read a comment that AT&T has 9% equity stake in Telmex, so I'm not sure how that information, if true, would play out or complicate a Slim investment.
• T-Mobile: Not likely, for reasons you can read about elsewhere.
• Lastly, there's speculation that Google might make a play for the spectrum.

Conclusion
The bottom line here is that there are lots of possibilities and scenarios for Sprint to be in play at its current market capitalization and stock price.

Sprint Nextel Watch: Undoing the Merger

Related Links:

Sprint Merger Would Be Hard to Undo, Officer Says

Sprint Nextel Corporation at Bear, Stearns & Co. Inc. Media Conference

Summary

An iDEN spin would be complex, but it would still be achievable with competent people in charge, and not as difficult as projected, given the relative lack of integration between the iDEN and CDMA networks.

Analysis

Kathy Walker, Chief Network Officer, is quoted in the Washington Post article, "Sprint Merger Would Be Hard to Undo, Officer Says" as saying that, "With everything we've done, it'd probably take longer to undo it."  This quote took the headlines from the publicly available Bear Stearns conference that took place on March 12, 2008. 

If you listen to the whole event, though, you get a different picture of the level of integration that has taken place between the iDEN and CDMA networks.  On a cell site collocation basis, Ms. Walker indicated that, to date, only 10% of iDEN and CDMA cell sites had been collocated.  Furthermore, she said that it turned out that the costs of collocating existing sites was much higher than anticipated, so, a significant percentage of those 10% of collocated sites were for new construction.  This matter-of-fact response, if accurate, calls into question one of the major drivers for the justification for the original $12B savings claim that would result from the Sprint and Nextel merger, that is collocation savings.  As such, if less than 10% of existing sites are currently collocated, then there has been public disclosure at least through this media conference of why the original projected cost savings were never realized.

Next, in response to another question on just what had been integrated between the two networks, Ms. Walker cited the following items:  voice mail, messaging platforms, billing and field technical support.  Generally, from a network element perspective, these are all generic, standard interface, technology independent platforms, and, with the exception of the billing platform, a relatively low proportion of total network value. 

Since there have been limited cell site collocations, the opportunity to leverage backhaul over a single transport pipe also appears to have been limited.  The big ticket network items, namely, switches, HLRs, base stations, BSCs, OMCs for each technology were disclosed to be operating separately. 

So, besides the largely peripheral or secondary, standardized network elements just mentioned to be "merged," Sprint has at least managed after more than two years to have implemented a single physical Network Operations Center, or NOC. 

A footnote on the merged field technical support staff:  it was disclosed that, in large markets, the technical support people likely retained their specialization of either iDEN or CDMA technologies.  Thus the cross-training of field staff has likely only occurred in secondary markets. 

How hard would it be to split off iDEN in the case of a spin-off?  Probably not as hard as the Washington Post article or Sprint indicates.  The major tasks needed, in addition to recreating headquarters, sales, customer care and retail functions, would be:  augmenting technical support, building a new NOC, planning for an HLR and billing system cutover, procuring ancillary network elements or reverting to existing ones, and, or course, negotiating procurement and support agreements with vendors and partners.

Conclusion

To be sure, an iDEN spin would be complex, but it would still be achievable with competent people in charge, and, from a hardware point of view, not as difficult as projected, given the relative lack of integration between the iDEN and CDMA networks.

iPCS Reaches Detente with Sprint Nextel

Related Links: 

iPCS posts greater Q4 loss, inks new affiliate agreement with Sprint Nextel

Sprint Nextel continues to raise ire of iPCS

Summary

The recent resolution of so many outstanding issues between Sprint Nextel and iPCS may be a small indication of yet another culture change at Sprint.  From a Sprint perspective, the question on many investor's minds these days is:  are these changes too little too late to make a difference?

Analysis

When iPCS, the CDMA affiliate of Sprint Nextel, announced operational results last week, the big significance was the  announcement that some of their court claims with Sprint Nextel were mutual withdrawn and new, lower cost per gross add user rates that Sprint Nextel charges affiliates to handle back office services were now in place. 

The feud between iPCS and Sprint Nextel is personal and goes back many years, at least to 2003, when iPCS filed for bankruptcy.  In distress, Sprint had the opportunity to help out its affiliate.  Instead, Sprint refused to help its partner and, as iPCS charged, withheld roaming fees and reduced roaming rates.  Of course Sprint was not obligated to help its partner.  On the other hand, Sprint certainly had the option to not take advantage either.  iPCS did the only thing any red-blooded American company could have done under they circumstances after being kicked while on the ground:   they sued Sprint for breach.  The relationship, of course, went further down from there as both companies played hard ball in every facet of the relationship. 

Some people have suggested that the roaming partners enjoyed the good life, collecting high roaming fees with little financial and operational risk, given that much of the back office operations were outsourced.  (If that were the case in this situation, though, how is it that iPCS filed for bankruptcy at all in 2003?)  Alternatively, from a true partnership and integrity perspective, if a key business partner has problems, you might consider the relationship from a holistic view and not take any failure or minor crack as an opportunity to treat your partner as an enemy.

After the Sprint Nextel merger was announced, as other CDMA affiliates were bought out, little iPCS held out and sued again over alleged territory, marketing and branding breaches related to the Nextel iDEN network competing with the CDMA network.  This time, though, it didn't turn out to be a ploy to get a higher takeover price.  It appeared to be personal.

To be sure, iPCS is a small player, covering about 15M pops and having well under 1M subs.  Its markets are in places like Grand Rapids, Davenport (IA), Scranton and along the Tennessee / Virginia border (i.e., bubba country).

Conclusion

So, although today one of the law suits in Illinois is still outstanding, the resolution of so many of these other issues between the two companies in favor of iPCS (note the CEO public comments of approval as well as the stock market's positive reaction) may be another small indication of a culture change at Sprint, which would be in the direction of treating partners with a win-win long term view.  Either that or Sprint may have just decided that fighting iPCS's only substantial leverage point, the exclusivity breach claim, wasn't worth the legal fees and the risk of losing.  From a Sprint perspective, the question on many investor's minds these days is:  are these changes too little too late to make a difference?

Sprint Nextel Watch: Hesse, showing leadership

Related Links: 

Sprint's Wake-up Call

Summary

Hesse deserves an 'A' for going public to shake up and embarrass entrenched management and the legacy mindset with details of customer care problems.

Analysis

I've tried come up with ideas for analysis so that I can wean myself from being a one-note analyst, since so much of my ongoing analysis is Sprint Nextel centric.  However, there just seems to be so much new news every week that it's difficult to pull away to focus on other issues in the wireless industry.  The latest revelation is this BusinessWeek article on Sprint's sad state of customer service.  That Sprint has bad customer service itself is not a revelation.  Indeed, the details are astounding.  I believe what is more telling though is what the story tells us about the new leadership of Dan Hesse.

There has been a lot of excellent analysis and insightful recommendations posted by independent analysts on what Sprint Nextel needs to do to fix customer care.  The BW article though paints such a dysfunctional picture.

Some thoughts and observations from recent personal experience and the article:

• If there was a playbook for unintended consequences emanating from perverse incentives that completely countered the goal of excellent customer satisfaction, it is embodied in Sprint's  customer care management practices.  An example:   requiring reps to have quotas for renewing contracts.  From personal experience recently, I attempted to deactivate a Sprint Aircard.  The card was on an internal business account and was still active.  Employee phone care told me I had to go to a store to deactivate (presumably, because they were will on quota to renew contracts and couldn't be bothered with providing other care -- employee care and regular care are now managed by the same group).  The store I went to politely told me that I needed to go to the Reston campus employee store to complete my transaction.  On my third touch with customer care at the campus store this past Monday (by now the BW article was on the web and on newsstands) the rep, although not his responsibility, did pick up the phone and resolved my problem on the spot.  I asked the rep if there had been any reaction to the BW article.  In response, he pulled out a computer printout of the online version of the article and asked, "You mean this?!"  All the reps, by the Monday after this article was published had been given the article. 
• CEO Dan Hesse was interviewed for the article and provided detail regarding his initial management reviews upon taking over a month ago.  Clearly, Hesse wanted to send a message to his company that he understands his task and will do whatever it takes to shock employees, and especially his management, into positive change.  In this case, he went public with this dirty laundry that would NEVER have been exposed under the old leadership and the Sprint legacy mindset. 

Conclusion
Hesse deserves an 'A' for going public to shake up and embarrass entrenched management and the legacy mindset with details of customer care problems.  Cooperating with BusinessWeek on this article was brilliant.  Although the news itself is old, the leadership shown by Hesse is the first tangible sign since taking over that, while there's still much risk for Sprint, there may finally be a real captain on the ship.

Sprint Nextel Watch: Price War! How Should Sprint Nextel Respond?

Related Links: 

UPDATE: Focus Shifts To Sprint Reaction To Unlimited Plans

It’s an unlimited industry now… but what about Sprint Nextel?

Verizon Offers Will Rattle Wireless World
 

Summary

In this article, it is proposed that Sprint has an opportunity to think and act strategically to counteract the Verizon announcement of, if not a price war, then an unlimited calling plan war, by promoting the iDEN network aggressively and expanding Boost Unlimited on the CDMA network.

Analysis

Although there was much buzz in the market about Verizon's announcement on its unlimited calling plan and what it means for the industry in general, to date, Sprint Nextel, unlike its rivals, AT&T and T-Mobile, has been silent in formulating a response.  Sprint had been dabbling with a Boost Unlimited plan in a few markets the past few months.  There had been speculation at that time that a Sprint, desperate to stop its exodus of subscribers, might itself be contemplating starting, or at least signaling intent to start, a costly price war.  If that was the message, and if Verizon was listening, the reaction has been a decisive one.  Whoops, what do we do now, chief?

Verizon, I believe, chose a rational time to announce this unlimited calling plan "war," if it was, in fact, targeted as an offensive move against its wounded rival, Sprint. Indeed, Verizon, AT&T and T-Mobile all reported outstanding net add performance for 4Q07. AT&T and T-Mobile promptly joined Verizon with unlimited plans, arguably to continue to provide an incentive for ongoing growth and, if lucky, inflict pain onto Sprint either in the form of reduced margins and / or a continued erosion of the subscriber base. 

The following proposal might be unconventional, but I believe makes logical sense as Sprint's reaction:

• Roll out an aggressive, perhaps $70 unlimited plan on the iDEN network.  Rationale:  The iDEN network already has excess capacity from subscribers having left for the past two years.  As a result, there are fewer subscribers generating revenue to cover the fixed, let alone variable, costs of operating iDEN.  Thus the incremental costs of adding iDEN subscribers from a network capacity perspective is negligible.  Sprint can use iDEN as an offensive weapon to inflict pain back at its rivals, stanch and potentially reverse the exodus of subscribers, AND prove to a potential buyer of iDEN that, not only is the network viable, but the iDEN asset has become more valuable with more subscribers.  iDEN can be used to spear back at Verizon and the industry, since the incremental costs of doing so are so low.
• Roll out the Boost Unlimited plan nationwide on the CDMA network that matches the Verizon plan as a defensive measure to keep CDMA subscribers at home where they belong, in Kansas.
   

Sprint Nextel Watch: Governance Issues at the Board and HQ Consolidation

Relevant Links:

 Update 2-Sprint appoints activist investor to board

Sprint consolidates HQ in Kansas 

Summary
Say what you may about the Sprint Nextel ship and its prospects, but the appointment of Ralph Whitworth to the board announced Tuesday (February 12, 2008) on the surface should appear to be regarded as good news.  If one of the key arguments explaining Sprint Nextel's woes lies with management incompetence and strategy, and this malaise has been in place since the merger, there's no better place to start than with the board, right?  In other news, the inevitable consolidation of HQ to Kansas was announced yesterday (February 13, 2008).  How can we interpret this consolidation in the context of the future of the iDEN network?

Analysis

Activist On Board: 

Certainly, Sprint Nextel isn't the only example of bad corporate governance at the board level, nor is it the worst, but the long, sad saga of the company makes it one of the highest profile examples.

According to this source, the major duties of Board of Directors include:

"Major Duties of Board of Directors

Brenda Hanlon, in In Boards We Trust, suggests the following duties (as slightly modified by Carter McNamara to be "nonprofit/for-profit neutral").

1. Provide continuity for the organization
2. Select and appoint a chief executive
3. Govern the organization by broad policies and objectives,
4. Acquire sufficient resources for the organization's operations and to finance the products and services adequately
5. Account to the public for the products and services of the organization and expenditures of its funds"

There has been much additional research on effective corporate governance, governance scorecards, and the relationship of good governance to stock price.  In this research, "board independence and separation of the chairman and CEO posts" are leading measurements and presumed indicators of the effectiveness of boards. However, Beth Young, in writing this article titled, "Corporate governance and firm performance: is there a relationship?" suggests that this presumption or intuitive common sense is inconclusive from empirical study.  She reasons, however, that "The lack of a relationship between board independence and performance across a large number of companies does not, however, mean that increased independence is not the right prescription for any individual company's board," and concludes, "as the academic research shows, there is no governance 'magic bullet,' and no substitute for thoughtful, contextual analysis."

IN the context of Sprint Nextel, it is clear that, through either complacency or incompetence or both, the Sprint Nextel BOD has failed shareholders in the most of the areas defined a their "Major Duties" above. 

In the relevant link above, Walt Piecyk, of Pali Research, is right on in identifying and demanding the ouster of several board members to "improve strategic decision making."  In this context, given the specific names of the board members that he has targeted, I support Walt and say, "let the sackings begin."

HQ in KS, And The Corn Fields Let Out A Sigh

In other news, the long awaited consolidation of HQ to Overland Park has been announced.  One day later (today), late in the trading day as I write this, the stock is down over 3%, giving back most of the gains from the previous day that was in reaction to the appointment of Whitworth to the board.  What gives?  I was thinking about the "who would buy iDEN?" question this morning in the context of the recent departure of the Nextel-legacy execs, Saleh, Angelino and Kelly, and thinking, if iDEN were to be spun-off at all, this trio of execs might have been interested in setting sail in that wooden ship onto the wireless high seas, and thus have hung on.  One logical interpretation is that they left because they were told that relocation to Kansas was inevitable and they didn't want to commit to the move.  On another level though, their departure might also signal a direction contrary to what I've been predicting, which is that iDEN will be spun-off and that the recent surge in iDEN advertising is just a "dressing up for sale" exercise.  If the market believes and interprets that, in totality of all these events, iDEN is going to stay for the long term, and that the sKilled CDMA-based boys and girls in Kansas are going to be managing iDEN in a consolidated HQ, perhaps that is one reason the stock is suffering from the consolidation news. 

Sprint Nextel Watch: Advertising and Branding

Related Links: 
Sprint ad campaign to snub its Nextel brand Posted June 27th 2007

Overview
New advertising and branding initiatives by Sprint Nextel of the iDEN network may be raising more questions than they are answering on future direction of the company.

Analysis
Disclosure: It's stated on Issue 1 of this Newsletter and on my blog that I am a former Sprint Nextel employee.  I have absolutely no inside information, nor have I had any discussions with insiders relating to this analysis.  These are my own hunches and opinions.  I do, however, have a modest (and rapidly diminishing level of) equity in the company from my days as an employee.

If you have been watching Sprint Nextel's advertising and branding activities lately, you will have noticed that since the first of the year, consistent with the January 30, 2008, press release, reaffirming Sprint Nextel's commitment to the iDEN network, advertising for the iDEN network and iDEN Push-To-Talk (PTT) seems to be all Sprint Nextel is advertising, with one exception. 

For the Super Bowl, there was an iDEN PTT ad at the end of the pre-game show.  For that day, iDEN was the underdog to the Sprint Nextel CDMA spot that aired during the game.  Other than that CDMA network spot during the first quarter, iDEN PTT advertising seems to be everwhere there is a Sprint television ad. 

What does this revitalized advertising for PTT mean?  Here are some possibilities:

• New management at Sprint Nextelis walking the talk in backing iDEN for the long term.
• Sprint Nextel is priming the market awareness for PTT in anticipation for the introduction of Qchat PTT later this year.
• Qchat has major problems and, since iDEN, albeit an iDEN with a hemorrhaging subscriber base, hence with lots of excess capacity, is the only PTT contingency plan for a defective Qchat.
• What I've suggested previously:  that the whole iDEN revitalization initiative is a ploy to add value to the network in preparation for a spin-off. A reasonable person might rightfully ask, "Who would buy iDEN?"  I'll noodle on this question and try to provide some thoughts in the future.

While on the subject of branding, as you prepare for the upcoming NASCAR racing season, you will also notice that the Nextel Cup has been officially replaced by Sprint in the Cup Series logo. 

To be blunt, this is a bonehead move in light of the respective Nextel and Sprint demographics and the new, revitalized, reemphasized iDEN network. 

Conclusion
For Sprint Nextel Watchers, the recent moves on branding and the re-emphasis of the iDEN network may be raising more questions than they are answering on the future direction of the company.

Originally posted in:

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EK Telecom Analysis Newsletter, Issue 3, February 9, 2008

Copyright 2008 by Edward Ketchoyian

Some Rights Reserved by Creative Commons License

******green-t@mindspring.com -- 571-233-2909 ********

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Sprint Nextel Watch: Clearwire Agreement Back On and iDEN Network Affirmed

Related Links: 

Sprint, Clearwire shares rise on WiMax report
Sprint Confirms Commitment to Industry-Leading Push-to-Talk Service

Overview
Big announcements on the Sprint Nextel front this week. Sprint, Clearwire tying up again and the curious announcement on the iDEN network.  Included in the developments was the announcement of a $31B impairment charge, which will not be covered below. 

Analysis
Disclosure: It's stated on Issue 1 of this Newsletter and on my blog that I am a former Sprint Nextel employee.  I have absolutely no inside information, nor have I had any discussions with insiders relating to this analysis.  These are my own hunches and opinions.  I do, however, have a modest (and rapidly diminishing level of) equity in the company from my days as an employee.

That said, there were a couple interesting announcements relating to Sprint Nextel in the past day or so.  One of which was the announcement that the Sprint - Clearwire cooperation arrangement is back on.  Not much to comment on here.  The ongoing dosey doe with Clearwire has probably been for different motivations every dosey.  The initial arrangement might have been made from the Sprint point of view in order to shift risk and costs onto others. However, Barry West had stated publicly weeks before the initial dosey that Sprint had the resources to build the WiMAX network on its own. Perhaps the desire for more ubiquitous coverage may have been a secondary motivation at first, but then made strategic sense when financial music stopped.  The breakup a few months ago was curious again.  I would have thought that Sprint would have stayed the course on WiMAX relationships until a new CEO came on board and had a chance to assess the situation.  At any rate, the Street has never approved of Sprint Nextel's recent go it alone approach.  Consistent with my article in Issue 1 on the Sprint Magical Mystery Tour, I see this tie-up with Clearwire as a first step in a multi-phased spin-off of WiMAX. 

More interesting is the Sprint affirmation of the iDEN network.  Let's break down the politburo press release. 

Starting off by calling the service itself "Nextel Direct Connect" is a change from previous brand positioning, where Sprint Nextel in the not to distant past decided to brand Direct Connect as a service, like voice mail, independent of underlying network technology, in preparation for the rollout of Qchat.  The re-emphasis and change back to  "Nextel" branded Direct Connect means something, but we may have to wait for the next photo of the committee to see who's missing before we can draw conclusions.

Next up, the announcement of new, recently introduced iDEN handsets.  You will notice in recent media advertising that introduction of iDEN handsets with the "i" in the model designation rather than "ic".  A single "i" means that the phone is a single mode, iDEN-only handset.  For awhile, you only saw cheap, lower cost "i" handsets.  Most other models for iDEN were "ic".  An "ic" handset is a dual mode iDEN / CDMA phone.  Sprint currently calls them "hybrid" phones.  A re-emphasis on iDEN-only handsets going forward could, on the one hand, indicate the longer life of iDEN, but the big question here remains:  under whose ownership. 

Then there is this sentence:  "Sprint will also focus on enhancing Nextel Direct Connect in 2008, including aggressively marketing Nextel Direct Connect and expanding features and functionality including combining Direct Connect with Sprint Mobile Broadband data capabilities."  [Emphasis added.]  There has been a brain drain of technical expertise on the Motorola development side for many years now.  The group is a shell of what it once was.  On the Sprint Nextel side, most of the technical talent that was there in the hey-day of iDEN, has either left the company or taken refuge in Xohm, the WiMAX unit.  Few are left to write technical requirements or oversee proprietary iDEN development for end-user features.  What is intriguing is the next part of the phrase though about combining Direct Connect with broadband.  Are we talking about a new dual mode, I mean, hybrid phone, or, perhaps, foreshadowing of a future iDEN / WiMAX device?  I'm not a professional analyst, but if I were, I might be interested in this question on a future earnings call.  Also, if there is an iDEN / WiMAX device in the offing, you might be able to continue to support the theory of a potential iDEN / WiMAX bundled spin.  Of course, at best, the politburo might know, but sometimes, they have no clue either. 

What follows is a review of the value add of Direct Connect, followed by several customer testimonials.  Sounds like a nice network that some people, perhaps an Arab sheik, might find valuable.

Conclusion
If indeed, Sprint Nextel intends to keep iDEN around for the long term, this would be diametrically opposite to what has been the inexorable momentum since the merger closed.  Repeating what was said on the Sprint Nextel Magical Mystery Tour, it's hard to imagine iDEN continuing as a viable network managed from Kansas.  Given that there are strong signals that headquarters will be consolidated in Overland Park, KS., my opinion is that a fresh coat of paint is being brushed on iDEN in preparation for a sale.

Originally posted in:

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EK Telecom Analysis Newsletter, Issue 2, January 31, 2008

Copyright 2008 by Edward Ketchoyian

Some Rights Reserved by Creative Commons License

******green-t@mindspring.com -- 571-233-2909 ********

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A Sprint Magical Mystery Tour: One Scenario for the Long Term Future

First Published 1/18/2008

Overview
A possible scenario is submitted on how Sprint will resolve its short term strategic issues and how this will all play out over the longer term in the wireless industry.  In the end, the author suggests a slimmed down Sprint, after spinning off WiMAX and iDEN, is ultimately taken over.

Analysis
Welcome to the Sprint Magical Mystery Tour!  That’s an invitation!  No need for a reservation!  We’ve got everything you need!  Satisfaction guaranteed!  Step right this way!  Come on!

What will and should Sprint do to right the ship?  What should and will Hesse do? And after that, what will happen?

What we know today is that there have been announced layoffs of thousands in addition to thousands last year.  If you are Sprint legacy, this is all part of the routine annual layoff season.  Except this year, the situation obviously is more dire with the stock trading at or below book value. 

Strategic decisions need to be made by the new CEO.  All others have failed before him or been driven off to the desert.  Sprint bled 377k negative postpaid net adds in 3Q07.  Thestreet.com reported last week that there will be an additional 500k negative postpaid net adds reported for 4Q07 [the official number is minus 683k].  This is an amazing number, because it probably reflects especially weak performance on the iDEN network.  In past quarters, Boost has done well, albeit with a high churn rate reflective of the prepaid business model, and the CDMA network has shown strength in positive net adds, only to be offset by iDEN losses.  Assuming the strength of the CDMA network has continued, then iDEN must be doing particularly badly to more than offset any positive story with the rest of the business.  The weakness of iDEN is even more astounding given that the quality of the network is better than it has ever been (whether that is due to increased investment or less stress on the network due to customers leaving for Verizon is not relevant). 

What are the clues that we can garner from Dan Hesse’s background and his statements for what will happen next?  Hesse has stated that his aim is to simplify.  He has done so in the past with success at AT&T Wireless with the pioneering and industry changing Digital One Rate plan.  Unfortunately, iDEN has turned into an abscess.  It needs to be cut out and spun off.  As we can see out the window of the Sprint Magical Mystery Tour, iDEN will be spun in order for Sprint to be able to focus on the profitable core CDMA network.  Hesse has cover for this action, because he is not associated with the previous dismal management. Rightly or wrongly, he also has pressure from the Street to spin WiMAX in order to preserve cashflow.  All this makes sense in the context of another somewhat obvious site on our Magical Tour: that consolidation of headquarters to Kansas will likely happen, based on the deduction that consolidation was one of the driving forces for selecting him as CEO.  A leading person on the board selection committee that picked Hesse is rumored to have done so because of a desire to save the Overland Park campus. 

So far on the Tour, we have iDEN and WiMAX spun off, possibly to the same entity and headquarters consolidated to Kansas.  Sprint, if smart, will then ensure in the spinoff terms interoperability between iDEN push to talk and Qchat, as well as access to WiMAX.  Sprint might also want to hang on to the 5 MHz of spectrum at 1.9 GHz  acquired as part of the iDEN rebanding agreement with the FCC and in turn bear the remaining rebanding costs of new equipment needed to move Public Safety entities to the reconfigured spectrum.  These actions might be a fair trade as part of unloading the iDEN albatross. 

Next on our Mystery Tour, Sprint will wait until after the 700 MHz auctions are over before announcing their intentions on 4G, i.e., UMB or LTE.  More on how this fits into the big picture later.

At this point, without iDEN and WiMAX, Sprint will have become much smaller, but hopefully profitable, and most importantly to the Sprint mentality, costs will be controlled.  At Sprint, cost containment is more important than strategic execution, customer care, network quality and having a clear marketing and brand message.  For Hesse, there should be an urgent need to clear out several layers of dysfunctional management thinking, but, since headquarters will be consolidated to Kansas, Hesse will have a protracted internal battle that will take many years to weed out the old line local and long distance mindset or will ultimately fail in trying to transform management.  This failure will not be due to lack of effort, but will be due to extraordinarily entrenched management that he needs in order to execute any semblance of a turnaround.  If there were a RoundUp management chemical, that kills both grass and weeds, that might get the job done quicker.  Hesse has been successful for turning around Embarq, but I would argue that the Sprint mess is greater and will take at least two years of organization change to fix. 

Now, what happens to this spun-off iDEN dog of a network?  Well, it could thrive once it comes out from the dark cloud that was the muddled and destructive stewardship of the Nextel PTT brand and cost containment mindset.  An analogy comes to mind here, that of a baseball player that is not able to perform well under the pressure and spotlight of New York City, but then thrives once traded to another team.  iDEN might also thrive under different management.  Will iDEN be sold to the Feds as part of a Public Safety network?  Hard to say, but to comply with Public Safety requirements would require substantial development and is beyond the scope of this Tour.  Please sign up for the 4 pm Tour next week to find out what happens next. 

IF and this is a big IF, hence the capital letters, Verizon does not win the C block in the 700 MHz auction, they will be in search of spectrum by other means and to achieve scale.  In this scenario, our Tour sees Sprint declaring LTE as a next gen technology after the 700 MHz auctions are over, thus signaling to Verizon Sprint’s desire to be taken out of their mystery, I mean, misery through a takeover.  To those who might say, “no way, the FCC and Justice Department would never allow such a merger, especially under a Democratic administration,” our Tour guides are instructed to point out that there may be additional and potentially formidable competition in the market introduced or strengthened by whomever wins the C or D block.  Thus, if Verizon loses, they might be able pass muster with a smaller, more compatible Sprint CDMA only network.  Besides, Hillary is not as liberal as y’all think she is. 

I hope you have enjoyed this Tour.  You may keep the 3D glasses that were handed out while you were waiting in line for future tours.

Originally posted in:

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EK Telecom Analysis Newsletter, Issue 1, January 23, 2008

Copyright 2008 by Edward Ketchoyian

Some Rights Reserved by Creative Commons License

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