The not-unexpected resignation of Sprint (sorry, Sprint Nextel, but, then, that may be the root cause of the problem here) CEO Gary Forsee calls into question essentially every element of Sprint’s corporate strategy. The company’s stock is down significantly over the past two years, and they are actually losing cellular subscribers. Like any investors, Sprint’s shareholders own the stock to make money. And if the money isn’t rolling in, then heads do the rolling. Hence Forsee’s forced departure.
But no matter what, Sprint has some tough decisions ahead. There has even been talk of spinning off (or even canning altogether) the WiMAX business. At the time of the original WiMAX direction announcement (about a year ago), I asked Sprint executives why they went with WiMAX rather than rolling out EV-DO Rev A at 2.5 GHz., or perhaps using this spectrum for UMB or LTE. The answer was that (a) they needed to do something with the spectrum sooner rather than later, or the FCC would take it back, and (b) WiMAX was the best hope for true mobile 4G broadband in the near term, with a lead of perhaps two years over the alternatives. Moreover, with the likes of Intel, Motorola, and Samsung ready to kick in vast wads of cash towards the effort, Sprint’s leveraged strategy looked brilliant.
But two key issues complicate the brilliance. The first is the vast amount of cash still required – perhaps $5 billion or so – that will be needed to complete a nationwide WiMAX buildout. Clearwire faces the same challenge. Where is Sprint’s money coming from, and might it be better devoted to the further buildout of Sprint’s existing broadband technology, EV-DO? And, speaking of EV-DO, how does a Sprint customer decide whether to go with WiMAX or EV-DO? The two do pretty much the same thing, and the technological details baffle most potential customers. The brilliant strategy – at least in terms of the initial start-up costs – starts to look a bit confused.
And that’s why I predict that the Sprint WiMAX effort will be spun off as a separate company within the next six months or so. Sprint needs to get back to the basics of being a scrappy competitor in cellular, especially with respect to integrating Nextel functionality into its mainline offering, and can always pursue an upgrade to EV-DO as the new technologies here mature. I’m sure the WiMAX community will jump on this opportunity, and Sprint won’t lose – for now, anyway – any money on the deal, retaining some ownership in the new venture (SpriMax?).
Business is all about focusing on the customer, and Sprint’s foray into WiMAX has been defocusing at best. The solution is simple, at least in concept.
