Sprint Nextel's Chief Resigns
Merger Fallout, Stock Slide Prove Forsee's Undoing

By Kim Hart
Washington Post Staff Writer
Tuesday, October 9, 2007

Sprint Nextel said yesterday that chairman and chief executive Gary D. Forsee will step down immediately, just two years after directing the $35 billion merger that created the nation's third-largest wireless company.

Forsee's main job was to parlay the merger into a telecom powerhouse while charting a lucrative path in the growing and intensely competitive wireless industry. But he failed to accomplish those goals in the view of Wall Street and the company's board of directors.

Now his departure leaves the Reston company at a difficult crossroads. The merger pitched two years ago as a combination of complementary companies has fallen flat, leaving engineering problems with the new network in its wake, sending its stock in a downward spiral and its customers fleeing to larger rivals.

Forsee, who has described himself as a leader capable of executing plans, has come under fire for failing to bridge the cultural and technical gaps between the two companies and forging a solid financial course for Sprint. As the company tried to phase out the Nextel network, consumers experienced dropped calls and a smaller coverage area.

Other wireless companies grew by emphasizing superior networks or better value, while Sprint's advertising campaign failed to establish its place in the market. With more than 80 percent of the U.S. population carrying a cellphone, wireless carriers are ruthlessly competing for one another's customers.

"Sprint's not starting with a clean slate, but it will at least be able to reset expectations now that Forsee is gone," said Michael Nelson, an equity analyst with the Stanford Group. "Of all the wireless carriers, Sprint is the only one that still hasn't found its identity."

Sprint has lost or ousted several members of its top management in the past year.

It has formed a committee of board members to conduct an outside search to fill Forsee's position. Meanwhile, board member James Hance Jr., a senior adviser at the Carlyle Group, a District private-equity firm, will serve as acting chairman. Paul Saleh, Sprint's chief financial officer, will be acting chief executive until a permanent successor is named.

Board member Irvine Hockaday said in a statement that the board was "focused on selecting the right candidate to guide the company to achieve its full potential."

Forsee was not available for comment.

The board was unhappy with Sprint's recent performance. Sprint warned yesterday that it expects to lose another 337,000 monthly customers in the current quarter and lowered its annual revenue expectations.

Some analysts and business school professors cite the marriage of Sprint and Nextel as a case study of a poorly conceived merger. Their wireless networks were largely incompatible, and the companies' cultures were worlds apart. Sprint was more than a century old and had a legacy in the local and long-distance telephone business. Nextel was barely a decade old, a scrappy up-and-comer that had cobbled together its network out of cab companies' walkie-talkie licenses. Sprint's strength in the wireless business came from its appeal to consumers; more than 90 percent of Nextel's customer base came from the blue-collar workforce. The companies' headquarters were also separated by half a continent, and more than half of the company's workforce remains in Overland Park, Kan., where Sprint had been based.

Whereas Nextel targeted business customers bound by contracts, Sprint had a bigger base of subscribers with poor credit and unsuccessfully tried to transfer customers from the strained Nextel network to its own. Millions of customers defected to rivals AT&T and Verizon Wireless.

Initially, the company cast the merger as financially sound, promising some $14.5 billion in savings through 2008. But combining operations has cost far more than either company projected. During the first six months of the year, two full years after Sprint and Nextel combined, the company attributed $262 million as merger expenses. It further warned that the merger "could prevent or delay our realization of the cost savings and other benefits we expect to achieve as a result of those integration efforts."

Sprint's share price has fallen 21.7 percent since the merger, closing down 51 cents yesterday at $18.50 a share.

Forsee, 57, who has led Sprint since 2003, has been assailed by analysts and investors since engineering the purchase of Nextel in 2005. An engineer by training, he worked for or sat on the boards of Sprint, BellSouth, Cingular, AT&T and Global One, a failed international telecom of the late 1990s. He became chairman of the company late last year, after Timothy M. Donahue, former Nextel chief executive, retired early. Forsee also ousted Sprint's chief operating officer, Len Lauer. That position remains vacant.

One of Forsee's most controversial moves was to commit $5 billion to building a new high-speed wireless network using a new technology called WiMax, which he promised would be up to five times faster than current cellular networks. He forged partnerships with start-up Clearwire to construct the network; with Google to search on the network; and with Motorola, Samsung and Nokia to build cutting edge-devices to roam on the network.

But he wanted to use WiMax technology, which met heavy skepticism from analysts because it is largely untested. The build-out has already hit delays.

Forsee tried to calm impatient investors by unveiling new cellphones, improving customer service, working with cable companies and revamping the company's marketing campaign. But he ran out of time by late summer, when the board scrapped the search for the No. 2 position and started looking for a replacement for the top job.

"Forsee will be blamed for a failed acquisition, but I don't believe he will be the last to exit," said Ben Abramovitz, senior analyst at ICAP Equity Research. "One man can't be blamed for all the issues Sprint currently has."

Staff writers Frank Ahrens and David Cho contributed to this report.