Choppy Waters for Sprint; WiMAX Bobbing Along?

By Tara Seals

Gary Forsee, embattled chairman and CEO of Sprint Nextel, resigned on Monday, leaving a train of speculation in his wake as to whether the company can turn around its ailing financials and continue to capitalize on the mobile broadband movement.

Most notably, some financial analysts say that Forsees planned Xohm WiMAX network expected to cost $5 billion over the course of the next few years will look risky to a new CEO trying to right a ship.

Considering that Sprint, which will release its third-quarter financial results on Nov. 1, has lowered its financial forecast for the current quarter (saying revenue would fall below the previously projected $41 billion to $42 billion), it would seem the company should be doing other things besides taking on more capex and build-out risk, analysts say. The carrier is also expecting a net loss of about 337,000 postpaid subscribers in the third quarter and an increased adjusted operating income of $11.5 billion up from the previously expected $11 billion.

To boot, issues with the Nextel integration including customer service and billing issues, along with having a wealth of poor credit subscribers, has translated into ongoing investor concerns. Relational Investors LLC, which owns about 1.9 percent of Sprints shares and was the impetus for Forsees departure, said its main issue was the WiMAX deployment and Forsees lack of focus on core wireless operations. And so, to satisfy Wall Street and its shareholders, Sprint may need to pare down, sell or spin off its WiMAX operations, insiders say. Standard & Poors has left room in its credit watch to downgrade the carriers ratings, depending on what happens next.

It is the right time to put in place new leadership to move the company forward in improving its performance and realizing corporate objectives, board member Irvine Hockaday said in a company statement.

WiMAX Reaffirmed?

Despite Wall Street jitters, spinning off WiMAX is something that Sprint itself denies it will do. A company spokesperson told xchange that the WiMAX build-out continues, with the schedule on track soft launch by the end of the year and commercial services beginning in April 2008 despite the executive-level chaos.

A look at the evidence may also suggest that Xohm is safe put simply, the ship has already left the harbor. With recent device development commitments and operator alliances, we plan to exploit our time-to-market and access innovation advantages to bring Xohm customers an enhanced mobile broadband experience, Sprints spokesperson said. Indeed, the company has spent several years and much capital gathering its considerable licensed 2.5GHz spectrum holdings, and has cut deals with everyone from device manufacturers to fellow service provider Clearwire Corp. to Google Inc. in its quest to create a new open-access business model that will lift all boats.

The idea is that wireless, ubiquitous connectivity with cable-modem-like speeds will provide the opportunity for a whole range of devices and third-party applications to come to market. At WiMAX World USA two weeks ago, Xohm chief Barry West said consumer electronics companies and handset manufacturers alike are planning on marketing mobile Internet devices under their own brands rather than becoming locked to a carrier. According to ABI, the ecosystem eventually will contain hundreds of vendors, chipmakers, display and device manufacturers, application developers and service providers.

And indeed, many manufacturers have already tied much product development to Xohm. Intel Corp. has pledged to integrate WiMAX chips into a range of devices beginning in May. Motorola Inc., Nokia Siemens Networks, Samsung and Nortel, among others, have all pledged WiMAX development on the network and device sides. As such, the collapse of Xohm will have far-reaching consequences for many, not the least of which for Sprint, which will still have to make good on its end of the various bargains, potentially an investors nightmare.

And Hockaday himself seemed to affirm that Sprint will stay on the cutting-edge road in his statement: “We fully expect that the search will be concluded in a timely manner, and we are focused on selecting the right candidate to guide the company to achieve its full potential,” he said. “Sprint Nextel has the assets, spectrum, customer base and technology to be the leader in wireless mobility services.”

The ultimate outcome will rest on the shoulders of Forsees replacement; the operator is already on the hunt for that person. For now, James Hance Jr., a board director, will serve as acting nonexecutive chairman. CFO Paul Saleh will step in as acting CEO and everyone else, Wall Streeters and telecom execs alike, must wait.

Recent Xohm Ecosystem Developments

At the WiMAX World USA conference two weeks ago, a pre-Forsee-stepdown Sprint was the darling of the scene, showcasing old alliances with Motorola and others, and unveiling several new relationships in its quest to make Xohm a reality. Here are the highlights:

PC manufacturers Acer, Asus, Lenovo, Panasonic and Toshiba have expressed intent to embed WiMAX into their next generation Intel Centrino-based laptops and ultra mobile PCs in 2008, so these devices can connect with the Xohm WiMAX network.

Upcoming Nokia Internet tablet devices will incorporate Intel WiMAX silicon, and will be among the first WiMAX-enabled open Internet devices expected to ship in 2008.

Motorola announced a mobile WiMAX chipset modem solution for handheld devices, adding to the development of its ecosystem of devices enabled with WiMAX.

Xohm customers will have simplified connectivity among network access choices. Trellia Networks Inc. of Montreal will provide a multicommunication connection manager software client for Xohm network access devices to enhance the Xohm customer mobility experience.

Korea Telecom has entered into a memo of understanding with Sprint for cooperation on the promotion of WiMAX to drive roaming, manufacturing scale and ecosystem development in support of global WiMAX adoption.

Sprint estimates that 50 million WiMAX-enabled devices will be available within three years.

Sprint Nextel www.sprint.com