Sprint moves on CEO, T-Mobile bid signal transition

The mobile carrier's next moves are unclear, analysts say

Mobile carrier Sprint faces an uncertain future after announcing it is replacing long-time CEO Dan Hesse and reportedly abandoning its bid to by competitor T-Mobile USA.

The decision to replace Hesse has "likely been long in coming considering the continued losses in the core business," Canaccord Genuity analyst Greg Miller wrote Wednesday.

Sprint's announcement Wednesday that it would replace Hesse with Marcelo Claure, founder and CEO of Brightstar, comes just days after the company announced its first quarterly profit in about six years. Sprint last week announced a first-quarter net income of US$23 million, following years of losses of much greater magnitude, but it also reported losing 245,000 contract subscribers. The company blamed some of those customer departures on an ongoing network overhaul that caused more dropped calls.

Claure founded Brightstar, now a subsidiary of Sprint parent company SoftBank, in 1997. He grew the mobile distributor and services company into a $10.5 billion business.

A Sprint spokesman called Hesse's departure a "mutual decision" between him and the company's board of directors. "Hesse's decision to leave was amicable and all believed a change in CEO would be in the best interest of the company," the spokesman said by email.

Meanwhile, Claure's top priorities will be to continue the build-out of Sprint's network and to maintain competitive services in the mobile market, the spokesman said.

It's not clear in what direction Claure will take Sprint, some analysts said, although it's likely the company will cut prices to recover some of the customer losses. The CEO transition "indicates to us that the worst is not behind," Miller wrote in Canaccord's daily brief.

Still, Sprint, the third-largest mobile carrier in the U.S., has the tools it needs to compete in the U.S. market, even after its reported decision to end its T-Mobile bid, said telecom analyst Jeff Kagan. "T-Mobile has been crashing and burning for years, then suddenly they are on a growth wave over the last year," he noted. "Sprint can do the same thing."

The entire mobile industry will evolve in the coming years, and Sprint can be part of the changes, Kagan said in an email. Mobile carriers will increasingly partner with other industries, such as auto makers, health-care providers and retail, to deliver services, he said.

"We will also see wireless carriers move into new businesses like home security and automation and providing phone services and Internet service to homes," he said.

Analysts offered a mixed reaction to the reports that Sprint has abandoned its bid to buy T-Mobile. The decision is "unsurprising, considering the proposed deal had little chance of making it through the regulatory approval process," Miller wrote.

But Walter Piecyk, a mobile analyst with BTIG Research, said he was surprised by the decision. T-Mobile parent company Deutsche Telekom, seeing a resurgence at T-Mobile, may have been unwilling to let the subsidiary go, he wrote Wednesday.

"While press reports have indicated Sprint's concern over regulatory approvals, which clearly played a significant role, we have to wonder if the larger issue was Deutsche Telekom's increasing unwillingness to sell as their performance exceeded Sprint's and new buyers emerged," Piecyk wrote. "Whatever the reason, the deal appears dead for now and telecom investors will now brace themselves for whatever [SoftBank] has planned for the United States within the next 6-9 months."

U.S. Federal Communications Commission Chairman Tom Wheeler's reaction to the reports that Sprint has ended its T-Mobile bid shows what an uphill battle the deal would have faced before the agency.

"Four national wireless providers is good for American consumers," Wheeler said in a statement. "Sprint now has an opportunity to focus their efforts on robust competition."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's email address is grant_gross@idg.com.

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Tags BTIG ResearchsprinttelecommunicationmobileT-Mobile USAMergers and acquisitionsJeff KaganGreg MillerpersonnelDan Hesse4gTom WheelerWalter PiecykCanaccord GenuityU.S. Federal Communications CommissionSoftbankrestructuringbusiness issuesMarcelo Claure

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