No Cultural Merger At Sprint Nextel

By Kim Hart
Washington Post Staff Writer
Saturday, November 24, 2007

More than two years after a $35 billion merger creating the nation's third-largest wireless company, Sprint Nextel remains a house divided.

Two sharply different corporate cultures have resulted in clashes in everything from advertising strategy to cellphone technologies, preventing Sprint Nextel from becoming the merger of equals envisioned.

The discord was on display almost immediately. At a Nextel managers meeting held just after the merger was announced in December 2004, chief executive Tim Donahue revved up the crowd with a pep-rally-style speech. Donahue, dressed in a sweater vest and khakis, drew cheers by chanting, "Let's go stick it to Verizon!"

He then introduced a special guest -- Gary Forsee, Sprint's chief executive and the architect of the merger, who had flown in from Sprint's Kansas City headquarters. Forsee walked onto the stage wearing a suit and proceeded to outline his expectations for the combined company in a PowerPoint presentation. The room fell silent.

Since then, Sprint Nextel has taken steps to merge the two cultures, creating committees and hiring consultants. But despite those efforts, the tension between the two factions has risen, according to several current and former employees. Meanwhile the company's stock value continues to decline, and it continues to lose customers and market share to its larger rivals. It is also facing tough questions from Wall Street about its expensive gamble on WiMax, a wireless broadband system it is building.

Similar culture clashes have overshadowed other top-dollar mergers, such as MCI and WorldCom and AOL and Time Warner. At Sprint Nextel, the struggle to blend the companies -- from its executive teams to billing systems -- ultimately forced Forsee to step down last month.

"It was a really painful process early on -- we had to make very difficult decisions, and some had unexpected consequences," said Paul Saleh, the interim chief executive and financial chief. "But I see us emerging from that as a stronger, more unified company."

Initially, the companies' disparate yet complimentary assets became a persuasive argument for the merger. Sprint, a century-old long-distance and local phone company, was turning its focus to consumer wireless services and wanted to inject Nextel's scrappy strategy into its business model. For Nextel, which was close to maxing out its network and clientele of business users, getting access to Sprint's larger customer base seemed like a logical move.

But it didn't take long for friction to surface, employees at both companies said. At the heart of the tension was a sense of mistrust on both sides, they said. Some Nextel employees say they feel the aggressive, entrepreneurial style that spurred its early growth has been stamped out by Sprint's more bureaucratic approach. Some of the Sprint folks say they feel deceived by Nextel's deteriorating network, the source of the company's deepest customer losses.

As longtime Nextel employees with the expertise to repair the network took lucrative exit packages, Sprint workers said they felt abandoned and blamed the ailing network for the company's financial woes. Nextel employees, meanwhile, felt their brand and technology had been unfairly dismantled.

Current and former employees and executives requested anonymity because they still have business relationships with Sprint Nextel.

Conflicts continued after the merger was finalized in August 2005. Executives from both Sprint and Nextel held confidential meetings to hash out internal disputes over, for example, the organization of sales teams and problems with billing systems.

Nextel employees typically proposed acting quickly and recall becoming frustrated when their ideas were shot down by their Sprint counterparts. It wasn't that they didn't like the ideas, Sprint people said at the time. They just needed to consult their superiors before agreeing on a plan.

Many such meetings ended with Nextel employees storming out, leaving the Sprint side baffled. Sprint people thought Nextel made reckless decisions and spent money impulsively. Nextel people felt stifled by Sprint's process-oriented pace.

Personnel changes also brewed bitterness, said a Sprint executive who asked for anonymity because he was not authorized to speak to the media. To be as fair as possible when deciding which employees would stay in duplicated jobs after the merger, Nextel and Sprint workers competed for the positions, a process that dragged on for months and created animosity.

"It would be hard to think of a problem that was given more attention" than the cultural issues, the Sprint executive said. "We leaned over backwards to understand the two cultures -- so much so that it basically made both parties compete. . . . No one could have predicted how difficult the true integration would be."

The decision to maintain dual headquarters, in Reston and Overland Park, Kan., only intensified the cultural divide. To avoid uprooting families and forcing employees to relocate, the board of directors voted to keep the company's operational nerve center in Kansas, Sprint's longtime home. Several top executives, however, would work from Nextel's stamping grounds in Reston.

"In the spirit of a merger, that was a big mistake," said Richard Dineen, an analyst with HSBC Securities. "Having your management and operations half a country apart doesn't foster a spirit of camaraderie."

At one point, the corporate jet shuttled between the two headquarters at least once a day. Sprint had recently built a sprawling, manicured campus in Overland Park, with such a large landscaping budget that Nextel folks referred to it as "Overhead Park."

For now, the company appears to be sticking with a two headquarters strategy. But Saleh has taken some steps to bridge the gap, holding a companywide webcast, for instance, to boost spirits after Forsee's departure.

But it may be a slow process. One recent Tuesday, a few Nextel veterans who had started at the company when it was young converged at the American Tap Room in Reston Town Center. Meanwhile, their co-workers from Sprint side hung out around the corner at Clyde's, another happy-hour watering hole.

While the split wasn't intentional, one employee one said, "it's just that, well, I think we all have a tendency to stick to our own kind."

Staff writer Kendra Marr contributed to this report.