With news today that Dan Hesse is being replaced as CEO of Sprint by Marcelo Claure , I thought it would be worth looking back at Hesse’s tenure as CEO.
An early opinion, from 2008
I dug out an old blog post from 2008 from a now-defunct blog I used to maintain, and it’s worth revisiting. This was just a few months into Hesse’s time as CEO of Sprint, and probably my first close-up encounter with him 1. I quote from that post:
Just got back from [a group] dinner with Dan Hesse, Sprint CEO, at CTIA here in Vegas… My first question was what he had learned about what had gone wrong at Sprint which had led it to the predicament it’s in today.
His main answer was that it ultimately all comes down to the merger with Nextel… The main issues stemmed from the fact that the merger was ultimately billed as, and contracted as, a “merger of equals” because the market valuations of the two companies were similar. This created huge problems, both in terms of the price paid and in terms of the structures and policies which flowed from that decision.
Firstly, in terms of the price paid, this led to massive synergy requirements to provide a return on investment. These synergy targets were overly ambitious and became the driving force for all the other targets at the company. The focus was therefore on massive cost-cutting, was very internal, and ignored external considerations, and especially considerations of customer care, churn and customer service, all of which suffered as a direct result.
The second problem was that the “merger of equals” narrative required an equitable distribution of various goodies after the merger concluded. This included seats on the board and in the senior management roles at the company, which were distributed equally between Sprint and Nextel. The split headquarters between Reston and Overland Park also resulted from this mentality. And it meant that no single unifying strategy led the company during that time, but rather it was constantly torn between the competing visions and philosophies of the people who had brought the two companies together.
From all this flowed the lack of focus on the important things, the over-focus on secondary considerations, and the mess Sprint is in today. Hesse is quickly changing all of this – one of his first moves was instituting greater accountability throughout the business (Gary Forsee had been the only person in the company with P&L responsibility before he left). And he has also made customer care, churn and other external metrics key to incentive structures and reporting throughout the business.
There is still a massive mountain to climb at Sprint, but Hesse certainly seems to have grasped the essential issues and made quick changes which should lead to the kind of turnaround that’s required. It remains to be seen whether the rest of the company can execute on his vision, but it certainly appears to be the right vision in many respects.
Consistent strategic priorities
To an extent that would become even clearer during the course of 2008, Hesse’s hands were tied to a great extent by the mistakes made by his predecessor. But he did the best he could with what he had to work with, and did an amazing job of turning the company around over the next few months and years. He established three key priorities for the company in those first few months, which he outlined at an analyst event I attended in May 2008 (again, quoting from that earlier blog):
Sprint has three clear strategic priorities: fixing the customer experience, establishing a clear brand in the market, and focusing on profitability. This clarity of purpose and focus on fundamentals is a good thing, and the key will be to execute on it without adding a raft of additional initiatives and programs over the coming months. Sprint needs to get the basics right before it gets distracted again.
One of the most impressive things about Hesse’s tenure is that he stuck to these three strategic priorities throughout it, and he reiterated these at the analyst event Sprint held in June this year. Fixing the customer experience, which had become so broken in the time after the Nextel merger, was priority number one, and Hesse made very rapid progress here, by looking at root causes of dissatisfaction and solving those one by one, leading both to increased satisfaction and a smaller call center footprint and staff. By October that year, Sprint was coming first in customer service surveys, a huge turnaround from last place two and a half years earlier. Under Hesse, Sprint transformed its customer experience and customer service, and this helped hugely in returning the company to growth and repairing a damaged brand.
Hesse also worked to personally fix the brand, appearing in commercials for the company to personalize his message of fixing the company and making Sprint great again. I’d argue that advertising was some of the most effective of any ads run by major US wireless companies over the last several years, and certainly Sprint’s most effective ad campaign of Hesse’s tenure. It led with Sprint’s new Simply Everything plan, which offered unlimited voice and data for $99.99, and was emblematic of a theme of simplification across Sprint’s business. Many calls to care involved questions about bills and overages, so Sprint simply moved to plans that were priced simply and didn’t incur overages. This built on Hesse’s history with price plan innovation, which he liked to point out started much earlier at AT&T, with the first 800 numbers, and later with the Digital One Rate plan at AT&T Wireless.
WiMAX – another albatross around Hesse’s neck
Besides the fallout from the Nextel merger and the neglect of the network which Hesse inherited, he also took over a company which had erroneously committed to the losing standard in the 4G wars, WiMAX. One of Hesse’s early moves was to spin off the WiMAX enterprise into Clearwire, in which Sprint retained a significant stake, and getting the cable companies on board to help support the venture. But that would come back to bite Sprint later as its lack of control over Clearwire led to conflicts and an ability to move quickly. Sprint’s commitment to WiMAX would become a major barrier to success over the next few years, even as it allowed it to claim to be the first 4G carrier in the US. Verizon and later AT&T and T-Mobile would all choose LTE instead, benefiting from the global scale of that technology and the much larger range of handsets and other devices that supported it.
Network Vision and Hesse’s undoing
Eventually, Sprint had to consolidate all its various networks and start on the path to LTE. Network Vision became that path, a way to not only bring together the disparate networks but create a foundation of cell sites which could easily run different network technologies and speed the transition to LTE when the time came. The first phase went well, and eventually led to the decommissioning of the LTE network. But the next phase, which Sprint is now well into, was essentially a disaster. The network upgrades caused disruption, poorer performance instead of improved reliability in the short term, and as a result Sprint returned to some of the problems that bedeviled it when Hesse took over. Its churn has risen, its net adds have fallen, and it’s lagging the other three major carriers in growth and churn at this point.
After Hesse’s early resurrection of Sprint’s customer experience and customer service reputation, driven by improvements in its network performance, it was sad to see it reverse many of those gains in the last year or so. In the process, Sprint has lost several of the executives responsible for its network, and Hesse has had fewer and fewer of his trusted lieutenants around him. There’s been a sense of tiredness and a resignedness to Hesse in recent months, and it became clear that he didn’t expect to run the combined company should Sprint and T-Mobile merge. So it’s not altogether surprising to see him go now, although it’s something of an ignominious exit.
Marketing was – and is – Sprint’s other key challenge
Besides the network upgrades, which should never have been as disruptive as they were but will soon be complete, marketing has been and remains Sprint’s biggest challenge. Other than Hesse’s early moves to introduce Simply Everything and revive the brand, much of Sprint’s marketing over the last seven years has failed to hit the mark. The focus of marketing in the US wireless market has shifted several times over the last 15 years or so, going from fewer dropped calls and better coverage (Verizon’s long-running “can you hear me now?” campaign and AT&T’s “more bars in more places”), to competition on 4G (where Sprint stole an early march with WiMAX, but soon succumbed to Verizon’s faster LTE rollout), to pricing and packaging (shared data plans from Verizon and AT&T, unlimited from Sprint and Uncarrier from T-Mobile). Other than Sprint’s brief edge in 4G, its marketing has remained sub-par and it hasn’t differentiated itself effectively in the market. Its two current campaigns – Framily plans and “America’s Newest Network” – aren’t resonating, and fail to articulate the benefits for consumers, especially as many existing customers are suffering from the “newness” of the network.
T-Mobile also struggled with marketing for a time after its low-cost, youth-oriented branding approach was usurped by the prepaid carriers and MVNOs, and it took a long time for it to find its feet. But John Legere has found T-Mobile’s niche and is aggressively pursuing that opportunity. I’m not the world’s biggest fan of the Uncarrier approach, and it has significant risks for T-Mobile, but at least it’s clear and vibrant, which is something Sprint’s marketing has lacked for some time.
Jobs to be done for Claure
As Claure takes over, finishing the network upgrade program quickly and painlessly has to be priority number one, because it’s causing churn and subscriber losses, and those undermine everything else the company might do. But he also needs to fix this marketing problem and find a way forward for Sprint. It’s not an easy – Hesse leaves Sprint in much better shape in many ways than when he arrived, but it faces to some extent the same problems he faced when he arrived. Hesse was a safe pair of hands who fixed the fundamentals early on and steered Sprint through a number of challenges with several major handicaps not of his own making. But perhaps now it’s time for Sprint to have a different, more aggressive leader who can take it into the next phase of its history.
In the next day or two, I’ll likely post separately on the failure of the Sprint-T-Mobile merger and what that means for both companies.
- Throughout his tenure, and throughout my time as an industry analyst, Hesse has been and remains one of the most accessible CEOs in the business, something I’ve been grateful for. ↩