Sprint CEO Claims Pole Position in Race to 4G

Dan Hesse of Sprint Nextel
Sprint CEO Dan Hesse
Source: Sprint

WASHINGTON — The competitive future of the wireless industry in the United States will have much less to do with phone calls and text messages than it will advanced data services delivered over lighting-fast broadband networks, according to Sprint CEO Dan Hesse.

Speaking here at the National Press Club, Hesse told a packed ballroom that his company’s investment in the WiMAX standard for a high-speed, fourth-generation (4G) network, which it took live in Baltimore last month, could give it the inside track to overtake larger rivals AT&T and Verizon Wireless.

Through each iteration of network enhancements, the wireless industry has seen its major players back competing standards in what Hesse called “religious wars.” The race to 4G is no exception.

Sprint (NYSE: S), with the backing of tech giants such as Intel and Google, is launching full-tilt toward a nationwide WiMAX rollout in a $14 billion venture that involves the partial acquisition of former partner Clearwire. Verizon (NYSE: VZ) and AT&T (NYSE: T) are both working toward the competing standard known as LTE, or long-term evolution.

But while WiMAX networks are already under construction, LTE deployments may still be a couple years away.

“Sprint chose WiMAX for one reason: WiMAX is available now, and our customers want 4G now,” Hesse said. “The Baltimore launch shows that the 4G’s here, and that the speeds are real.”

Much of the spectrum that Verizon and AT&T will use to build out their LTE networks won’t become available until next February, when television broadcasts switch to an all-digital format. Combined, the two companies spent more than $15 billion to acquire that spectrum at the Federal Communication Commission’s (FCC) auction earlier this year.

Sprint has been talking up the virtues of WiMAX for years, but took its greatest step to date with the Clearwire venture in May. Under the complex arrangement, Clearwire would be reconstituted as a nationwide WiMAX provider, with Sprint holding a 51 percent stake. The existing entity of Clearwire would take a 27 percent share, with Google, Intel’s Intel Capital unit, Comcast, Time Warner Cable and Bright House splitting the remaining 22 percent.

The FCC is currently reviewing the deal, and the companies are expecting approval by the end of the year. For Hesse, the sooner that comes, the better.

“We intend to be the leader in wireless data, and being first with 4G was crucial for us,” Hesse said. “So I think there’s an advantage for us — because, quite frankly, we’re smaller than AT&T and Verizon — to be first, and to be different.”

“We see it as an opportunity to differentiate Sprint,” he said.

The 4G network Hesse envisions will make possible all manner of bells and whistles, like a chip embedded in a car enabling parents to download a movie when the kids get cranky on a road trip. Or a dual-mode air card for a laptop that would automatically “downshift” from 4G to 3G when it traveled to an area where the WiMAX rollout hadn’t yet arrived.

But building out a nationwide network isn’t cheap. And while Sprint and its big-league partners bring considerable financial resources to the table, Hesse worries it might still might not be enough, especially when jittery investors take a magnifying glass to the company’s balance sheet four times a year.

Asked what the next U.S. president could do to promote broadband access in rural America, Hesse replied, “Provide subsidies for WiMAX deployment,” to peels of laughter and loud applause.

“I say that kind of half-jokingly,” he said, noting the prohibitive expense of constructing a network across vast, sparsely populated regions of the country. “The economics don’t work.”

Page 2: Not a fan of Net neutrality laws; and will Sprint debut an Android phone?

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“One of the challenges that the next administration and the FCC face is to try to figure out how … we incentivize these new wireless technologies to be built in rural America. And there will have to be some form of subsidy mechanism to make it happen,” Hesse said. “There has to be some kind of public-private partnership.”

And the wrong way to do it? Regulation.

“I think the telecom industry as a whole, probably the thing that scares the industry the most about a Democratic administration is regulating … what’s working really, really well, and that’s the Internet,” he said. “It’s called Net neutrality, and that’s regulating the Internet.”

The term “Net neutrality,” Hesse said, is straight out of “1984,” George Orwell’s dystopian novel where words mean the opposite of what they sound like. As carriers, the need to stifle one heavy user who’s “gumming up the network” is essential to providing an overall level of service, just as an apartment building portions out the water supply to all of its tenets. Stripping carriers’ ability to mange the allocation a limited commodity would have “horrendous implications.”

Democratic hopeful Barack Obama has pledged his support for Net neutrality; John McCain opposes it.

A customer-friendly network and a Sprint Android phone?

Faster networks give rise to ever-more sophisticated devices, which Hesse said can be a double-edged sword.

Last holiday season, the gifts that people returned most often were smartphones and PDAs, Hesse told the audience.

“The number one reason given was it was just too complicated to set up,” he said. Customers crave a “worry-free experience,” which means easy-to-use, intuitive devices backed by great customer support.

Sprint has received some poor marks for its customer service, but Hesse has made it a top priority to shed that stigma in his 10 months in the company’s top spot.

Under his stewardship, the company’s customer-support operation has become “focused maniacally on what we call first-call resolution,” Hesse said. Swifter resolution of customer issues, coupled with network improvements that cut down on the number of complaints about dropped calls, has enabled Sprint to close six call centers this year.

To a similar end, the company has launched initiatives such as “Ready Now,” where salespeople in Sprint’s stores configure customers’ phones to their specifications, and rolled out several new one-touch models and the Instinct, Sprint’s iPhone rival. Even the name is intuitive, Hesse pointed out.

He had high marks for Apple’s device, and the aggressive price point that it has been made available to consumers thanks to a hefty subsidy from AT&T.

As to the latest challenger to the iPhone’s mantle as the coolest phone on the planet — T-Mobile’s G1 — Hesse was lukewarm. The G1 runs the Android operating system, an open source project spearheaded by Google but developed under the auspices of the Open Handset Alliance, of which Sprint is a member.

“We’re very interested also in developing an Android-capable phone,” he said. “We don’t think it’s ready yet to be good enough to put the Sprint brand on. But you can expect an Android device from Sprint sometime in the future.”

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