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Monday, April 30, 2018

Sprint: quo vadis?

In 1981 I was at a crossroads in my career. I discerned that being a university professor was not for me, so I quit the Ph.D. program. Having taken that step, it was logical that I leave the administrative employ of the university too. A friend of mine had recently joined a start-up in Atlanta, ISACOMM, that was selling satellite communications services. That sounded like fun, so I began interviewing with them.

During the hiring process, a company I'd never heard of — United Telecom, headquartered in Kansas City — acquired ISACOMM. I saw no downside in the deal for me, so I took the job at ISACOMM. A company with a very conservative reputation, United owned local telephone companies ("independents") in various places around the country… a steady if somewhat boring business. United left us alone for the first two years. During that period, the long-distance telephone market in the U.S. began to be competitive and people became aware of companies like MCI and Sprint. The latter had emerged from the internal microwave network of the Southern Pacific Railroad.

One day a vice president from the Kansas City corporate staff came to Atlanta and told us a rather incredible story. McKinsey, one of the top-notch management consulting firms, had convinced United to enter the long-distance business. Moreover, their entry would be timed to align with the emergence of fiber optic transmission as a disruptive alternative to satellites and microwaves. Kansas City "bet the farm" and went forward with the plan. The most expedient way to obtain a customer base for the fiber network was to acquire Sprint and then decommission Sprint's microwave network in favor of fiber. Having done that, United renamed themselves Sprint.

That's where the story ends for me. Sprint wanted to centralize everything in Kansas City. By then I had been to KC often enough to know that I didn't want to move there, so I changed jobs. Soon, Sprint was on national television with the "You can hear a pin drop" ad campaign. Eventually they decided that the local telephone business truly was boring, so they divested it. The mobile phone business, on the other hand, was exciting. Over a period of years Sprint re-positioned itself as a mobile phone service company; no one cared about long-distance services anymore. Unfortunately for Sprint, AT&T and Verizon had exactly the same idea. As a weaker competitor, Sprint fell into third place and gradually lost its mojo in the market.

After years in a rather hopeless situation, Sprint has announced a merger with T-Mobile, the fourth-place mobile phone company in the U.S. and similarly impotent. Even with their market shares combined, they'll still run third to AT&T and Verizon. The merged company might be able to improve its profitability by eliminating redundancies, but that's an ugly process. The "Sprint" name will be retired in favor of T-Mobile's branding, putting an end to roughly a 40-year run. Although I lost any personal connection to Sprint long ago, I would like to see the company survive. Something about this deal, however, strikes me as the new Penn Central.