Investors Critical of Sprint's Chief
Friday, October 5, 2007
Sprint Nextel chief executive Gary D. Forsee is facing intensifying pressure from shareholders to improve the company's financial health, causing several analysts to speculate that he may be forced to step down in the coming months.
The Reston firm, the nation's third-largest wireless carrier, has already begun looking for Forsee's replacement, the Wall Street Journal reported late yesterday afternoon. News of the search came after activist investor Ralph Whitworth, principal of investment fund Relational Investors, which owns about 1.9 percent of Sprint's outstanding shares, told the Journal he has "lost confidence" in Forsee.
Whitworth and other investors have been critical of Sprint's large investments in WiMax, a technology that is similar to WiFi and expands Internet coverage from several feet to several miles. At the same time, the company continues to lose valuable wireless customers. Despite gaining more customers than it lost for the first time in a year, the company's profit dropped 95 percent in the second quarter of this year. Forsee warned that he expected more customers to defect in the third quarter.
Sprint shares rose 52 cents, to $19.28, yesterday. This was an indication that investors are ready for a change in management, said Michael Nelson, an analyst at Stanford Group.
"Every conversation I have with investors comes down to Forsee and how long he's going to be at the post," he said. "The consensus is that Forsee's time at Sprint is probably limited, and he's certainly on a short leash from the board."
Since its merger with Nextel in 2005, Sprint has struggled to hang on to its highest-paying customers and has been unable to move Nextel subscribers to Sprint's network. Spotty service on the strained Nextel network has caused customers to leave in droves. And the company still heavily relies on customers with poor credit, who are less likely to pay bills on time.
Sprint has also been faulted for investing nearly $5 billion to build a wireless high-speed Internet network using WiMax technology, which is untested on a national scale. Investors and analysts think Sprint should instead focus on fixing problems with its core wireless business, which is losing ground to rivals. Sprint added 400,000 net new customers in the second quarter, and rivals AT&T and Verizon Wireless added 1.5 million and 1.3 million customers, respectively.
The company has also poured resources into its prepaid Boost brand. Prepaid services are considered less profitable to a wireless company than a standard monthly customer bound by a contract. In June, Sprint launched a multimillion-dollar marketing campaign.
Patrick Comack, senior equity analyst at Zachary Investment Research and Management in Miami Beach, said such projects may have been meant to "divert attention away from the deteriorating core business."
"It's about time someone spoke up and called out management's multiple mistakes and inability to do the job," he said.
Forsee has led Sprint since 2003 and became chairman of the combined company last year. Since then, investors have become impatient with the company's results and management's execution of new initiatives.
The top job may be hard to fill. The board has been trying for more than a year find a chief operating officer after Len Lauer, who held the position at Sprint since 2003, left. At least one candidate approached by the company turned down the job, according to sources familiar with the search who spoke on the condition of anonymity because the matter is not public.
"No one wants to jump on a sinking ship," Nelson said.