Hesse Takes Charge at Sprint Nextel

By Kim Hart and Kendra Marr
Washington Post Staff Writers
Wednesday, December 19, 2007

Sprint Nextel's new chief executive, industry veteran Daniel R. Hesse, may bring serious change to the struggling wireless carrier, saying he will reevaluate its controversial high-speed Internet strategy and consider moving the company's headquarters from Reston.

Hesse, 54, yesterday took the helm of the country's third-largest wireless company, a position that has been vacant since October when Gary D. Forsee quit under pressure from investors and board members. Hesse most recently was chief executive of Embarq, a local phone-service company spun off from Sprint last year. He previously led the wireless division of AT&T, now the nation's largest wireless carrier, and has close ties to Sprint's board of directors.

Although he is respected on Wall Street, some industry analysts are skeptical about his ability to bring about the dramatic changes necessary to turn the company around. Since its merger with Nextel two years ago, Sprint has lost many customers because of problems with its network and customer service. Sprint had also committed to spending at least $5 billion to build a high-speed network using a largely untested technology called WiMax, a gamble that alarmed some investors. Its partnership to build the network with wireless firm Clearwire dissolved last month.

Analysts and employees' speculation yesterday focused on Hesse's plans for WiMax and the possible relocation of the company's corporate headquarters. Hesse lives near Embarq's headquarters in Overland Park, Kan., Sprint's former home. The company's operational base, with about 13,000 employees, remains there. About 4,500 employees and executives work in Reston.

"One of the things I will evaluate is whether we should consolidate to one headquarters or not and where that headquarters ought to be," Hesse said yesterday in an interview. "I've not made any decisions yet."

He also said he does not have a "magic timetable" for figuring out the direction of the WiMax network, which is supposed to be available in Washington and Baltimore next month. "That is something I will spend a good deal of time on right off the bat," he said.

Hesse said his first objective is to stem the steady loss of customers to its larger competitors, in part by improving customer service. Other pressing issues include developing a new image to differentiate Sprint's brand from competitors and easing the culture clash that has plagued the company since it merged with Nextel.

"I have experience in all aspects of Sprint's business. . . . I am very familiar with both cultures, and I think I can make a difference," he said.

Those who questioned Hesse's appointment said his experience could work against him because he might not bring a fresh enough perspective to the job.

Sprint's problems require drastic change, Pali Research analyst Walter Piecyk said in a note to investors.

Although Hesse may intend to improve Sprint's poor operational performance and cultural differences, "we fear that it will be the typical corporate 10-point plan that lacks the radical change and immediate action necessary to set a new course for Sprint," Piecyk said.

He expressed disappointment at the board's selection of Hesse and suggested that board director Irvine O. Hockaday Jr., who led the search committee for the position, chose him because of his ties to Kansas City rather than for his leadership abilities -- a sign that the company will move its headquarters.

A move to Sprint's original headquarters would not solve the company's problems, Piecyk said.

"The problems run so deep at Sprint that it will take most of 2008 just to stabilize things, let alone improve them," he said.

Hesse's telecom experience will be an asset to Sprint as it tries to regain its footing, according to some analysts and former colleagues. He spent more than 20 years at AT&T, including three years as chief executive of its wireless unit, which AT&T bought from Craig McCaw, an early Nextel investor, in 1994.

Even before cellphones were widely used, Hesse earned a reputation for having a keen eye for industry trends and neat gadgets that would resonate with customers, said James W. Cicconi, an AT&T senior vice president who joined the company during Hesse's tenure.

"He's good at looking over the horizon and spotting trends to see where they're likely to carry an industry," Cicconi said. "He recognized the importance of the cool factor in a device."

Cicconi, who heads AT&T's government affairs operation in Washington, called Hesse an "apostle of device innovation" and recalled Hesse coming to meetings with a briefcase full of the latest cellphones and gadgets to pass around the table.

Hesse is best known in the industry for spearheading the Digital One Rate plan, which eliminated roaming and long-distance fees. Hesse's plan sold cellphone minutes in bulk at a flat fee in an effort to simplify the business and encourage cellphone use. Other carriers followed his lead.

"Dan's the guy that remade the mobile industry," said Tom Wheeler, who ran the wireless industry's trade organization, CTIA, when Hesse worked at AT&T. "He can look at what others have already looked at and see something completely different."

In 2000, Hesse became chairman and chief executive of Terabeam, a Redmond, Wash., wireless start-up that merged with another wireless company, YDI Wireless in Falls Church, in 2004.

Robert E. Fitzgerald, who worked with Hesse on the merger and is now chief executive of Proxim Wireless, noted that Hesse stands 6 feet 5 inches tall, giving him a striking presence.

Fitzgerald recalled arriving early with Hesse to a meeting with wireless company Clearwire, which is in the same building as AT&T in Seattle. To kill time, the two went to the AT&T cafeteria. It took 45 minutes to walk across the room.

"Everyone knows him and everyone wants to talk to him," Fitzgerald said. "That's Dan, the mayor."

Hesse, who sometimes quotes actress Mae West and Shakespeare during analyst calls, joined Sprint in 2005 to head its local-phone service operation, which became Embarq a year later. His main job was to re-brand Embarq, and he has focused on rolling out new services, such as a wireless service that works with traditional phone lines. Embarq, like many local phone companies, faces a rapidly declining land-line business.

In recent Embarq conferences calls, Hesse referred to himself as a "wireless guy," and some analysts say that will come in handy at Sprint.

"He's very familiar with Sprint, but he can come with a different perspective and put in place a clear, concrete strategy for the future," said Michael Nelson, an analyst with the Stanford Group.

At Embarq, Hesse recently established a program in which each department measures itself against the performance of competitors in order to find ways to improve efficiencies in the business. He recently cut 1,000 Embarq jobs -- a signal to some that he may do the same to reduce expenses at Sprint.

CIBC analyst Timothy Horan yesterday told investors that he expects Hesse to be cautious at the outset, partly because he has not run a major wireless company in six years. But Horan expects Hesse to "aggressively restructure" Sprint in three to four years.

Daniel A. Alcazar, Embarq's vice president of communications and brand management, reported directly to Hesse for two years and said Hesse typically spent a lot of time in the field talking to employees.

He said Hesse recently launched a program to ensure that all 19,000 Embarq employees know enough about the company to sell its products to their friends, family and neighbors. He developed several "elevator speeches" summarizing the highlights of Embarq's long distance, local, wireless and small-business packages.

Hesse had the speeches printed on index cards for every employee and posted the text on every computer screen saver. He then started team competitions to make sure all the employees were learning the speeches.