Could Sprint CEO's departure jeopardize its WiMax plans?
- 10 October, 2007 19:25
The biggest long-term impact of Gary Forsee's departure as CEO and chairman of Sprint Nextel could be on the company's huge WiMax wireless broadband initiative called Xohm.
Some financial and technology analysts believe that Xohm could be in trouble, although not immediately. A new CEO could spin off the business unit or scale it back, they said.
However, other analysts say that Sprint and its investors would be crazy not to capitalize on the huge investment the company already has in licensed 2.5 GHz spectrum to be used for the Xohm network.
Slated for a US$5 billion investment by Sprint in coming years, Xohm is supposed to provide 2Mbit/sec to 4 Mbit/sec in wireless broadband speeds to 100 million users, starting in a nationwide rollout next year, Forsee told analysts and the press in August.
Sprint Chief Technology Officer Barry West, the president of the Xohm business unit, hailed Xohm at WiMax World in Chicago two weeks ago, noting it was broadband wireless technology that Sprint was ready to deploy in initial markets in Washington/Baltimore and Chicago in December, putting Sprint far ahead of competitors such as Verizon Wireless and AT&T.
But partly because of Forsee's inability to successfully integrate Nextel with Sprint and Sprint's continuing problem with churn, or loss of mobile subscribers, some analysts have seen Sprint's enormous investment in Xohm as a detraction from its core business.
One financial analyst, Philip Cusick of Bear Stearns, wrote last week to investors that Sprint should cut its spending for Xohm in half to concentrate on its central cellular and network backbone businesses. He predicted Sprint is "likely" to de-emphasize Xohm, resulting in a slower rollout than West has promised, with the possibility of a delay in the contract with Clearwire to help build out the network.
Despite Forsee's departure, Xohm spokesman John Polivka said this week that Sprint remains "committed to the WiMax network development and Xohm mobile Internet service launch. "It's business as usual for us," he said, adding that Sprint is getting ready for a commercial services launch in the second quarter of 2008.
"There's more momentum than ever, thanks to recent device development commitments, " Polivka added. "We expect to exploit our time-to-market advantage to bring Xohm customers an enhanced mobile broadband experience."
Berge Ayvazian, an analyst at Yankee Group in Boston, said it's expected that Sprint would say the Forsee resignation will have no impact on Xohm.
However, Ayvazian said Sprint's optimism could be thwarted. "My opinion is that any new CEO would take a fresh look at all of the company's initiatives and businesses and establish some priorities." he said. "A new CEO could spin off Xohm, or run it as a strategic initiative" under an executive other than West.
Philip Marshall, also at Yankee, added, "it is more critical than ever for Barry [West] and his team to gain the support of the financial community. Without this, a new CEO might opt to back away from Gary's strong support for WiMax."
Another technology analyst, Derek Kerton, of the Kerton Group, said it's a "no brainer that Xohm is bothering Sprint shareholders." Xohm carries risk and is not the kind of initiative an investor expects from a stable utility company. Rather it's the kind of investment expected from a technology company such as Microsoft or Oracle.
"It's impressive that Sprint is doing Xohm, but blue chip investors may not want something to do with that, and some may want to divest," Kerton added. "There is a certain amount of threat shareholders will put on the new CEO to shut down or reduce Xohm."
Still, Kerton and other analysts said Sprint's investment in 2.5 GHz licenses for WiMax uses are unique. "That's a good investment and can't be immediately copied by competitors, " Kerton said. "Xohm is not a guaranteed success, but a good risk. And if it succeeds, you've really got something."
Poor marketing at Sprint, subscriber churn and problems retaining Nextel customers after the merger led to Forsee's departure, and are now leading to questions about the future of Xohm, Kerton said.
Gartner's Phillip Redman said Forsee's resignation "probably" won't hurt Xohm's growth because Sprint has to launch WiMax over the 2.5 GHz frequency by 2009 or the company could lose it under US Federal Communications Commission rules.
"Yes, with the FCC rules about spectrum, it's use it or lose it," added Jack Gold, an analyst at J. Gold Associates. "To not use it at Sprint would be foolish. WiMax is probably Sprint's best bet to differentiate themselves from the crowd.
"Some new CEO could come in and pull the plug on Xohm, but I don't think it will happen," Gold added.
Before hiring a new CEO, Redman said Sprint should examine what type of company it wants to be, "not all things to all markets." If Sprint wants to focus on consumer segments with cellular and Xohm, it needs an executive with consumer marketing and consumer product experience, he said.
Ideally, the new CEO should be someone who understands the important changes going on in the industry, such as the combining of Internet, media and communications, rather than an executive from the traditional telecommunications industry, Marshall said.
Sprint needs to be "rearchitected" before hiring a CEO, added Gold, much the same as IBM did after it missed the PC revolution. "WiMax could really lead in this space," he said.
There needs to be a serious evalution of Sprint's mission before installing another CEO, Kerton said. "Pulling the coach and slapping in another, I don't know if that solves anything," he said.