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Interview: Sprint CEO Hesse: ‘We Still Have A Lot Of Areas For Improvement’
Sprint’s message following the release of its first-quarter financial results today was this: Most of the company’s major initiatives are in place—now it has to wait for the impact to show up in the second half of the year.
Sprint’s CEO Dan Hesse, who took on the task of turning around the company two years ago, said during the company’s conference call: “We recognize there’s a lag between improvements and when the market recognizes these improvements. We have strengthened the company finally. We have more cash and less debt...We are far from satisfied with post-paid subscribers, but we are hopeful that the Palm (NSDQ: PALM) Pre and other initiatives we have planned will help over the year. The hard work is not over, but we have enough cash to give us time to figure things out.”
After the call, I followed up with Hesse to discuss about what the company has left to do; rumors about outsourcing the company’s network; the role of app stores; the company’s new $50 pre-paid offering, which struggled under the weight of unexpected popularity; and about the upcoming Palm Pre, which they confirmed will launch by the end of June.
Excerpts after the jump…
Q: In previous conference calls, you were always very honest about how much work you still had left to do. Today, you said “we have strengthened the company finally.” Is that a sign that you have turned a corner? How much do you have left to do?
Hesse: It’s all relative given the economic climate. We still have a lot of areas for improvement, but I feel good about the fact that we are generating a lot of free cash flow. We have enough cash to get us into 2012, and in today’s environment that’s a big plus. A year ago, even six months ago, it wasn’t like that given some of the debt maturities—our cash position has improved. What gives us the most optimism is what we have been working on from day one is where we are improving [like generating cash flow and improving customer service]...Generating cash flow gives you lots of time to turn the company around. We have a lot of work left, but what we have been working on has been paying off. We’ve been making progress on a turnaround.
Q: One of the ways you could continue to make progress is by outsourcing parts of your network to a company, like Ericsson (NSDQ: ERIC). Can you comment on the latest rumors today, saying you are close to a deal with them?
Hesse: No. We have said publicly, on a number of occasions, that we are looking at all possible alternatives. Everything is on the table, including outsourcing. There’s nothing new there. We’ve been every open that we are open to exploring alternatives, like outsourcing parts of our network management. No decisions have been made, so we can’t comment on any speculation.
Q: In my opinion, you have been one of the more aggressive companies at building out a wholesale business with devices like the Amazon (NSDQ: AMZN) Kindle. Are you worried about becoming a dumb pipe, like other carriers?
Hesse: We think the model of the future is to bring as many devices as possible on to our network. If you take a look at the growth possibilities, you have post-aid, which is dominated by cellphones and smartphones, PDAs and air cards, and then you have two areas of growth: prepaid and wholesale. That’s our Boost Unlimited offer and wholesale, which is everything from traditional phones, like Virgin Mobile (NYSE: VM), to all sorts of embedded devices, and machine to machine. You can look at the new Ford truck, which is embedded with Sprint (NYSE: S). We don’t consider it being a dumb network if people get there newspaper or book immediately by downloading it over our network, like the Amazon Kindle. We see that as a terrific opportunity.
Q: Carriers are making a lot of money today selling ringtones and other content. Do you see a model forming where the carrier plays less of a role, and there’s someone like Apple (NSDQ: AAPL) that manages the App Store and keeps the revenues?
Hesse: Those are the kinds of things we are looking at. There’s going to be a proliferation of applications, and we have a very open approach. We have 250 devices that don’t carry the Sprint name. We’ve had an open development platform for some time that uses standard tools like, Java, which makes it easy for a web application developer to port over to a Sprint mobile device. We want to encourage as much app development as possible, and customers are going to be looking for an increasing number of applications. As you know, our 4G strategy includes owning 51 percent of Clearwire (NSDQ: CLWR). They also have very much of an open model. One of the significant investors is Intel (NSDQ: INTC), which wants chips in as many devices as possible.
Q: What about things like the BlackBerry App World? Is that a threat because it rolled out directly to customers and doesn’t share revenues with the carrier?
Hesse: I think the market is going to evolve. We don’t view changes to the market as threatening, but opportunities. We ask, how can we create a win-win here? The customer is going to do what they want to do.
Q:What about Sprint’s exclusive content agreements with Nascar and the NFL? Do you see Sprint continuing partnerships like that?
Hesse: I think that’s going to be very, very important. You’ll still have exclusive content that we only provide to our customers. You’ve named two of our most important, NFL Mobile Live, and Nascar Mobile Live. Subscribers can get access to all sorts of content they can’t get anywhere else. And, about a year ago, in March 2008, we opened up full HTML browsing to all of our CDMA phones. That’s unique in the industry. In the ideal world, we have exclusive content that’s optimized around the mobile experience. For instance, with Nascar, you can listen live to any race, any pit crew that you want. You can listen to the chatter if you are in Seattle, and the race is in Daytona. We at Sprint plan to bring customers special content for them, but we don’t want to limit them from getting other content.
Q: You rolled out Simply Everything a year ago. On the earnings call, you called it the MVP for subscriber acquisition, subscriber retention and average revenue per user (ARPU). Do people use a tremendous amount of data?
Hesse: What they love about it is the simplicity. While at AT&T (NYSE: T) Wireless, we rolled out the Digital One Rate plan 11 years ago (which gave people nationwide calling for one rate). Customers just want to use the device for all it’s capable of doing, including NFL Mobile Live, or Nascar. They can go to Sprint TV and they can go to the web. These devices are Swiss Army knives. We don’t want to limit them. If they like to Twitter, they can do it to their heart’s content.
Q: The adoption of the Boost Unlimited plan, which offers unlimited voice, text, push-to-talk and web, was unexpectedly high, and caused text message delays. You said today on the call that those issues have been fixed. What happened?
Hesse: The demand for Boost Unlimited significantly exceeded our forecast. It was much more successful than we thought it would be. The iDEN network itself ran perfectly. There was plenty of additional voice capacity, but the messaging platform was overloaded. We had under-forecast demand. We think those problems, those delays of text messages, are behind us, and it’s operating more at normal levels.
Q: How did demand exceed capacity. Are typical iDEN users not heavy texters?
Hesse: They were texters, and they continue to be, but we are talking big subscriber numbers, and that’s why you are seeing the street react. It’s 50 bucks, there’s no hidden fees. You get the great iDEN network that covers the entire country, unlike its competitors that don’t have the coverage.
Q: You are obviously pegging a lot of the company’s success on the upcoming Palm Pre roll-out. Have you said how long you have the exclusive for?
Hesse: No.
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