Sprint Wiring Itself for a Comeback

Nation's No. 3 Bets on Palm Pre, Big Cuts

One year ago, many were questioning Sprint Nextel's chances of survival. The firm was reeling from a disastrous $35 billion merger that brought together conflicting technologies and warring cultures. Its customer service was so bad that subscribers were leaving at a rate of 12,000 a day. Its bloated operations led to losses averaging $250 million a month.

In the last several months, the company has adopted a series of fresh strategies. It dramatically cut costs, launched a new marketing campaign and made a deal with Amazon to run service for the Kindle, a digital reader.

The biggest buzz at Sprint surrounds the launch earlier this month of the Palm Pre, a souped-up cellphone to compete against Apple's iPhone. The Palm Pre, which lets users easily surf the Web on the go, sold out of stock in Sprint stores on its first day and is being sold on one-week waiting lists.

But even as these strategies show early signs of paying off -- Sprint's stock, for instance, has more than tripled since November -- the company is coming under fire in Washington. The deal with Palm, in particular, has raised concerns in Congress and among regulators at the Federal Communications Commission, who question whether pacts between carriers such as Sprint and phone makers are hurting smaller wireless operators and consumers.

Sprint is the nation's third-largest carrier with 49.1 million subscribers, trailing far behind Verizon Wireless and AT&T. But as regulators consider ways to keep the big two from consolidating too much power, Sprint could potentially be buffeted as well.

"A lot of policymakers are concerned that the market structure in the wireless industry has become too solidified, so there is anxiety that AT&T and Verizon, through their acquisitions and spectrum auctions, have outpaced the others too much," said Rebecca Arbogast, a technology and telecommunications policy analyst at investment firm Stifel Nicolaus. "And on some core issues under scrutiny right now, Sprint is in the same camp as Verizon and AT&T."

Sprint is in a delicate position. The company is seeking to challenge Verizon and AT&T, a welcome development for those urging greater competition in the wireless market, but also championing certain practices decried as anti-competitive by some consumer groups and smaller carriers.

Sprint, for instance, has stood with smaller carriers and public interest groups for reforms in the way telephone companies charge wireless firms for using phone lines. This is an issue because a call from a mobile phone goes to a cell tower and then often links to the nation's network of underground and overhead phone lines. Sprint says it is currently overcharged for landline access.

On the other hand, the company has sided with Verizon and AT&T against a "net neutrality" regulation proposed by the FCC that would prevent a carrier from deciding which software applications and devices can run on their networks.

Of particular concern to Sprint is the heightened scrutiny on Capitol Hill and at the FCC on exclusive deals between carriers and device makers that restrict certain phones to a particular network, such as with Palm for the Palm Pre and between AT&T and Apple for the iPhone. New FCC Chairman Julius Genachowski said at his Senate confirmation hearing that he could review these pacts.

Regional carriers have complained to the FCC that the deals put them at an unfair disadvantage because they can't strike the same partnerships for the fastest and hottest gadgets.

Sprint argues that exclusive deals are common business arrangements. Sprint notes that the iPhone has brought 2.5 million subscribers to AT&T since its launch in 2007. And in the way that Air Jordans revived Nike and Martha Stewart linens brought luxury to K-Mart, Sprint sees the Pre as vital to its comeback.