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Wednesday, October 17, 2012

The sad tale of Sprint

When I decided to leave academia in 1982, a friend told me about an interesting opportunity at a start-up that had just been acquired by a company called United Telecom in Kansas City. I didn't know anything about United, but I took the job anyway. It turned out that United was a traditional local telephone company -- among their holdings was Carolina T&T, the provider of local service in much of eastern North Carolina -- but United wanted to be much more. The start-up where I worked evolved into the national accounts division of United's new long-distance company.

United kept expanding. They funded a nationwide fiber optic network, an avant-garde undertaking in the late 1980s. (Remember the pin-drop commercials by Candice Bergen?) To obtain critical mass, United acquired a competitor called Sprint and took the Sprint name. They bulked up further by acquiring other local service properties. Ultimately the entire operation, both local telephone service and long-distance service, was rebranded Sprint. I remained in close touch with the company because they were a major customer of Nortel.

Alas, Sprint as we knew it has disintegrated. Their crucial mistake: like MCI, they were late to understand the significance of mobile phones. Consequently Sprint has always run third behind AT&T Wireless and Verizon Wireless -- despite shelling out a lot of money for Nextel, a wunderkind of the 1990s that appears to have been a one-trick pony in retrospect, and despite being one of the first companies to commit to a now-familiar wireless technology called CDMA. The damage wasn't limited to wireless, however. Long-distance as a business has virtually collapsed. The high-tech bubble of 1998-2000 put so much long-haul fiber into the ground that anybody can get it now for cheap. To make things worse, providing local telephone service became an uninteresting business because subscribers are dropping their landlines in favor of wireless or VoIP. Sprint finally decided they could do without the local service business, and they divested it.

Thus we see that the grand vision of the 1980s for Sprint -- a vision reportedly cooked up by McKinsey -- just didn't materialize. Softbank, a major player in the Japanese telecom market, has announced that they will acquire most of Sprint. I'm not surprised. The Japanese yen is so strong against the dollar that many Japanese corporations will be going on a buying spree in the USA. Stuck in third place and falling further behind because their balance sheet is stretched thin, Sprint needs a massive infusion of capital to compete with AT&T and VzW. Softbank has the cash, to be sure. The questions are: do they have a plan? And will it turn out any better than United's of 30 years ago?