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For Sprint, lessons learned could mean brighter WiMax future

After learning some hard lessons about failed partnerships and mergers, Sprint appears ready to turn its fortunes around with Clearwire and WiMax.

Well before its current WiMax venture with Clearwire, Sprint's history of failed partnerships with cable companies and its ill-advised merger with Nextel may have taught the company the lessons it needed to learn in order to survive.

Today, Sprint is still struggling to retain customers, but its churn rate is finally lowering, and customers and partners share real excitement about its upcoming 4G network, which is backed by a well-respected consortium of technology leaders and media giants.

It was not so long ago, however, that the wireless telecom tried a different bold partnership with the cable companies to help it compete against AT&T and Verizon, which were merging their wireless and wireline businesses.

Sprint's coalition, loosely linked at the best of times, failed because none of the partners focused on selling the combined offerings, and Sprint continued skidding into also-ran status. But the lessons of that failed partnership have apparently not been lost on Sprint's new CEO, Dan Hesse, as he heads up a new, arguably riskier, consortium.

This time, however, Sprint has made sure that all partners have a major stake in Clearwire's success, to the tune of billions of invested capital, and Hesse has reorganized management to ensure that fundamentals like customer service and quality control do not fall prey to shortsighted cost cutting.

"Sprint's a strong company that has gotten beat up for years," said Jeff Kagan, an independent telecom analyst in Marietta, Ga. "Is Dan Hesse the right guy? Is the plan the right plan? Is this WiMax thing going to work? We don't know … but I feel much better about Sprint today than I did a year ago."

Sprint's troubles began in earnest around 2000, according to Kagan, when the long-distance business entered a free fall and the company's core business moved to wireless. As its competitors merged with complementary wireline carriers, Sprint stood alone, losing clout and proving unable to gain the operational and marketing efficiencies that rivals enjoyed.

With takeover rumors swirling, Gary D. Forsee was appointed CEO in 2005.

"He saw all the [industry] changes, and he had to make some bets, and when you change a company, there are no certain bets," Kagan said.

Few of those bets would pay off by the time Forsee was let go last year. The local wireline business was completely spun off as Embarq, which has seen early success. But Forsee also oversaw the merger of Sprint with Nextel, marrying two incompatible networks and earning himself the dubious distinction of being one of Forbes' worst CEOs.

It is the Nextel merger that has been blamed for many of Sprint's worst problems.

"They had a reputation for being innovative, but I'm not sure they have been innovative the past few years," said Jan Dawson, vice president of telecom consultancy Ovum. "The Nextel merger stopped them from thinking about the innovative, customer-centric things they should have been thinking of."

But now, analysts say, Sprint is turning another of Forsee's more controversial moves into what could be a saving grace.

WiMax was initially unveiled to great fanfare. The close partnership between Sprint and the original Clearwire sought to build out a national 4G network, but the capital expenditures worried investors, and the two companies struggled to meet deadlines.

When Forsee was fired last year, the WiMax dream was expected to go with him. But instead, Clearwire was reborn as a joint venture owned 51% by Sprint, 27% by original Clearwire investors, and the rest funded and owned by an A-list of cable companies such as Comcast and Time Warner and technology firms such as Intel and Google.

Sprint has learned its lessons since the last time it partnered with cable companies, analysts say. This partnership relies much more on a combined marketing rollout as well as shared skin in the game.

"It fell apart in the beginning because, while it was a good idea, it was up to Sprint to make it work," Kagan said. "Today, the plan is similar, but there are lots of partners, and the partners all want to make it work."

Together, the late entries into the Clearwire partnership have invested $3.2 billion, not including all the R&D work and other outside investments they have made. Intel, in particular, is betting big that WiMax will become a 4G standard.

"You've got a lot more salespeople, a lot more advertisers raising the [WiMax] profile and bringing it to everyone's attention," Kagan said.

With the sole responsibility for WiMax's success (or failure) no longer squarely on Sprint, the company has also had a chance to correct some of the fundamental weaknesses that have dogged it in recent years.

"The biggest thing that has changed recently is the new management team [Hesse] has put in place," Dawson said. "He really gets it and understands what the problems were."

The customer experience was foremost among those problems.

"They are now very much focused on simplicity as a differentiator," Dawson said. "They are trying to make sure people don't get in the way of customers."

That means a flatter customer-relations structure, where the goal is to solve customer problems on the first call, as well as better explanations and guidance from the outset to reduce help calls in the first place.

The efforts are apparently paying off: According to the Kansas City Business Journal, the number of customer calls that are resolved the first time increased every month from January to July -- the best record of improvement since the ill-fated merger.

The education of Sprint hasn't been cheap. As the company has struggled to correct past mistakes, investors wait to see how many more subscribers it will lose each quarter. But Sprint now has a chance to prove it has learned something.

"The company is working hard to pull itself out of the several-year slump," Kagan said. "The moves Dan Hesse has made make sense, and if they work the way it's planned, then Sprint is going to be stronger, it's going to be better."

"There's a lot more accountability now for performance," Dawson said. "Hesse is setting Sprint on the right path … but it's not an easy mountain to climb."

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