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Learning From Sprint's Stumble

Sprint Nextel's  recent troubles could serve as a lesson -- both good and bad -- for other wireless carriers, including newly-combined AT&T and Cingular wireless.

Unlike AT&T's merger with Cingular , the Sprint-Nextel marriage faced an awkward merger of consumer and business subscribers and two different network technologies. After announcing a slide of more than 300,000 subscribers in the 4th quarter, Sprint Nextel said it would slash 5,000 jobs (just under 8 percent of its staff) in order to cope with the loss. In a bid to regain subscribers, Sprint plans to add more staff to its sales, advertising and handset divisions.

Sprint Nextel CEO Gary Forsee pinned the weak performance on $1.1 billion the company spent building its WiMax network.

"It was mostly self-inflicted," NPD Group analyst Neil Strother said of Sprint's wounds. The 2004 merger created a perfect storm by combining Sprint's CDMA  network and Nextel's iDEN push-to-talk technology. Network congestion angered post-paid subscribers, who fled to rivals, said In-Stat's David Chamberlain. Those postpaid subscribers were replaced by prepaid users. Again, Sprint bled cash. "They lost their core customers," said Chamberlain.

Sprint is one of only two pure wireless carriers left in the U.S. market. T-Mobile is the other. But unlike Verizon and Cingular, Sprint Nextel appears to be more vulnerable to market pressure. For example, Verizon Wireless  could try to woo away more of Sprint Nextel's subscribers.

It will take more than quick fixes to right Sprint again, Chamberlain said. "They have this sullied reputation that will be hard to overcome."

Sprint and other carriers face a changing landscape. A lesson from Sprint: avoid churn (subscriber turnover) at all costs, said Strother.

Carriers are also toiling in a much tighter market these days. As cell phone service becomes commoditized, providing phone or data functions won't be enough, said Strother; mobile phone providers have to compete within micro segments of video, music, text messaging and more. "It becomes a very different business."

When the line between voice and data continues to vanish, customer service becomes the differentiator for carriers, added Gartner Research analyst Phil Redman. Sprint knows this all too well. It recently named a new head of costumer service.