Sprint Prepares to Cut the Cord

Forsee said he recognized that size would be an issue for Sprint, and that is what spurred the merger with Nextel. "We had to think about whether we wanted our number one and number two competitors to be twice as big as us," said Forsee, who will be chief executive of the combined Sprint-Nextel. "At the same time, our strategy was to be an enabler of the cable companies," he said.

Forsee, who had worked at Sprint for 10 years, left BellSouth to rejoin Sprint as its chief executive in 2003. At the time, Sprint was in desperate need of leadership that knew its business, and nearly every division of the company's operations was in disarray. Customers were unhappy with its cellular-phone service and its long-distance business was in rapid decline. Its long-time leaders, chief executive William T. Esrey and president Ronald T. LeMay, were forced to resign by Sprint's board in early 2003 for using a questionable tax shelter for their personal finances.

Forsee said Sprint's management team had been considering its long-term future since his arrival. They kept coming back to one thing: wireless.

Of course, there are no guarantees in the fast-changing world of telecom. "Nothing's risk-free. Status quo can be a formula for disaster," he said. "We're going to make the bold moves to be competitive."

Sprint plans to roll out an advertising blitz encouraging customers to "cut the cord" and abandon their land line phones altogether. It plans to spend nearly $3 billion on its network to get better signals into buildings so that all-wireless will be a more appealing alternative for customers.

Already, 21 percent of Sprint's subscribers rely on their cell phones as their primary line, said Timothy Kelly, president of Sprint's consumer division. But Sprint, combined with Nextel, will try to push that trend further, he said. For now, Sprint is trying to design products and pricing plans that appeal to groups of customers, like female-led families with children or young, wired professionals, who are likelier candidates for all-wireless plans, he said.

For customers who want a line at home, Sprint is developing a cell phone hybrid that comes with WiFi wireless technology built in. That would allow a user to make calls over an Internet-phone line at home, but over the cell phone network away from home -- bolstering cable companies' ability to market Internet-phone systems as a replacement for regular phone service.

Verizon Wireless and Cingular would never do that, said Len Lauer, president and chief operating officer of Sprint. "That would be like parents cannibalizing their children."

Over time, Sprint and Nextel could build an even bigger wireless superhighway, using the high-frequency swath of airwave licenses they both control. If the right technology develops, analysts say, those airwaves could be used to transmit very high speeds of mobile data and even television channels.

Wireless is the industry's fastest growing area, with more than 182 million subscribers in the United States, and subscribers increasing at a rate of 15 percent a year, according to the trade group CTIA-The Wireless Association. Consumers are disconnecting their local phone lines at a rate of about 6percent a year, according to the most recent statistics available from the Federal Communications Commission. Sprint is more than happy to cannibalize the old telephone business. Through partnerships with cable companies like Cablevision and Charter Communications Inc., Sprint sells cell phone service and Internet-phone service. Over the next year or so, Sprint plans to deepen and broaden those kind of relationships, integrating more cable-video programming on its phones, and partnering with companies such as ESPN and Time Warner Cable to sell specially branded phones that tie in with the cable programming by offering sports updates, cell-phone video clips and the like.

Because Sprint has what cable does not have -- a wireless network and a global phone network -- its executives hope to parlay its independence into strong alliances with the cable giants. That way it can expand business by selling more phones, ring tones, mobile videos, and Internet phones to a broader audience, essentially selling the tools that enable cable companies to compete against the telephone giants.

"Cable is exploring ways to get into wireless," and Time Warner Cable's partnership with Sprint and MCI to sell Internet telephone service has paid off, said Mark Harrad, a spokesman for Time Warner, which has been selling Sprint service on a trial basis in the Kansas City area.

"It's very rare for a leopard to change its spots, but that's what [Sprint's] done" by adopting a wireless-and-cable strategy, said Scott Cleland, chief executive of research firm the Precursor Group. The wireless and cable industries need each other, he said.

Sprint's executives said it was a natural evolution for the company.

"We have common visions and common enemies" with the cable companies, said Lauer. "We could sell stand-alone wireless service, but growth there is limited. We want to be the third screen into someone's life," connecting cell-phone users to their televisions and computers, he said. Thus, "we see our interests aligning with cable." Such a strategy isn't risk-free: The cable relationships may not pay off for Sprint, or Sprint's wholesale business could end up creating new competition that ends up cannibalizing its own business.

The former MCI, after its merger with Verizon is completed, will be selling Verizon Wireless services to its corporate customers. The same goes for AT&T, which has a large corporate customer base, and which will start selling Cingular's service to that customer base.

Nextel's Donahue dismissed the threat, saying the company has never had a problem attracting and retaining business customers.