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Sunday, March 02, 2008

Sprint Nextel Posts $29.5 Billion Loss

Slashdot It! Daniel R. Hesse, Sprint Nextel’s new chief executive, tells it like it is — but, investors did not like what they heard. Sprint’s stock slid more than 9 percent after the company announced a $29.45 billion fourth-quarter loss because of a huge write-down related in part to its merger with Nextel Communications. The company also said it was suspending the payment of its dividend and had borrowed $2.5 billion through a revolving credit facility. Mr. Hesse, a former AT&T executive, took over the troubled company only two months ago. When asked if he feared the prospect of bankruptcy, he said, “We have plenty of cash on hand.” Sprint borrowed the $2.5 billion, he said, because it “allows us to focus exclusively on fixing the business” and mitigates the potential financial risk of outstanding loans. Sprint has $1.25 billion in bonds maturing in November, as well as $600 million coming due in 2009. Many of Sprint’s peers have warned recently of weak earnings amid a slowing economy. But Mr. Hesse put the responsibility for the company’s situation squarely with Sprint’s management. The $29.45 billion loss, which works out to $10.36 a share, contrasted with a profit of $261 million, or 9 cents a share, in the quarter a year earlier. Sprint’s fourth-quarter revenue was $9.85 billion, down from $10.44 billion in the period in 2006. With one-time items like the $29.7 billion write-down excluded, operating income was down 69 percent, to $235 million in the quarter. For the year it was down 43 percent, to $1.78 billion. Sprint has been struggling to keep its 53.8 million customers happy. Mr. Hesse said it expected to lose another 1.2 million subscribers this quarter, about the same amount it lost in all of 2007. He said it could lose even more customers in the second quarter. Analysts were not surprised by the company’s poor showing or the prospect of more defections. “No one expected Sprint’s results to be anything other than poor today, which makes the fact that they have managed to miss on virtually every metric a performance of some heroism,” wrote Craig E. Moffett, a senior analyst at Sanford C. Bernstein & Company. Further, he wrote, “the near-term contrarian argument of a turnaround — or, better, a strategic acquisition — remains highly speculative.” Accepting the chief executive job, which few industry executives expressed interest in, may have been a form of heroism in itself for Mr. Hesse. The company has had a revolving door of executives in the corporate suite. In August 2006, Sprint lost Len J. Lauer, the chief operating officer, who said he was leaving because of a change in organizational structure. Timothy M. Donahue, the executive chairman, also resigned earlier than expected. Last October, Gary D. Forsee, the chief executive, resigned after news reports that Sprint’s board was looking to replace him. Analysts attribute much of Sprint’s management problems to the poorly executed merger between Sprint and Nextel, a deal struck in 2005. The two companies’ networks did not share the same technology, which made it difficult to merge operations, and also had clashing marketing strategies. With the company in a tenuous state, rivals swooped in and courted dissatisfied customers. Mr. Hesse, who became chief executive two months ago, said he took the job because “Sprint is an iconic brand.” But even he underestimated the severity of Sprint’s challenges. Last month Mr. Hesse announced more layoffs and the departure of three senior executives. “Like a lot of things, it is tougher than I thought it would be,” he said. “It’s not a quick fix. I had hoped I could turn it around faster. But I have confidence in the long term.” To stem further customer losses, Mr. Hesse said Sprint would begin offering a service plan that gives customers unlimited calls, text messages, Web access and G.P.S. navigation on their mobile phones. Priced at $100, the offering is aimed directly at AT&T and Verizon, which announced similarly priced wireless plans last week. The rivals’ plans only include voice calls, not Web access or text messaging, which both pump up revenue for wireless companies. Mr. Hesse recalled his days running AT&T Wireless Services and how it began offering simple one-rate plans to customers frustrated by confusing prices on long distance and roaming fees. Sprint customers now spend about $58 a month on average on their wireless plans, he said. “This is about simplicity,” Mr. Hesse said. Still, he warned that the new plan would not cure Sprint’s ills. Get Daily Updates via Email Protect your computer with Windows Onecare Get paid $7.50 for reviewing my post Ad Space

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