NEW YORK — Sprint Nextel on Tuesday named the head of Embarq Corp, its fixed-line spin-off, as its chief executive, hoping the telecom industry veteran can turn the No. 3 U.S. mobile service provider around.
Analysts welcomed the appointment of Dan Hesse, who was widely seen as the top candidate to replace Gary Forsee, who resigned in October amid a loss of market share to rivals such as AT&T and Verizon Wireless.
But Sprint’s shares barely moved as analysts said it would take time to fix its myriad problems. Sprint is suffering from customer defections and is under pressure from investors to reconsider costly investments in new technology.
“Sprint Nextel’s problems are bigger than any one person, a CEO, can change in the near term,” said Stifel Nicolaus analyst Christopher King, adding that Hesse was likely the best choice given the difficult task ahead.
“I think it’s a safe hire,” he said.
Shares in Sprint, whose market value is around $41 billion, were just one cent higher to $13.92 in early afternoon trading on the New York Stock Exchange.
Hesse knows Sprint well, having worked at the company’s local phone service division before it was spun off to create Embarq.
Analysts lauded his performance at Embarq, as well as his past leadership at AT&T Wireless. Some noted that Embarq under Hesse had introduced higher-speed Internet services without significant price rises, to combat customer losses to cable.
“There’s basically no learning curve,” said Berge Ayvazian, chief strategy officer at Yankee Group. He noted that Hesse already knows Sprint’s board members well, through negotiations to spin off Embarq.
Hesse has extensive experience in the telecom industry. He spent 23 years at AT&T, including postings as president and CEO of AT&T Wireless Services from 1997 to 2000.
Investors had been wondering why the CEO search was taking so long. Some analysts said the decision may have been delayed by a $5 billion investment offer last month by a group including former Sprint Chairman Tim Donahue.
Sprint rejected the bid by Donahue, who had teamed up with South Korea’s SK Telecom Co Ltd and Providence Equity Partners, according to a source.
Investors will be looking to Hesse to help Sprint stem subscriber losses, as well as to make some critical strategic decisions such as on its plans to build a new high-speed wireless network based on WiMax technology.
WiMax has yet to be commercially proven and Wall Street has been concerned that Sprint’s $5 billion target spending on WiMax is too high. Some analysts have suggested options such as scaling back the spending or spinning off the wireless unit.
Some analysts also said Hesse would have to make a decision on what to do with Sprint’s long-distance business.
“I don’t expect anything immediately but I do expect over the next year or two there will be some moves he’ll make that will position the company better,” said Yankee Group’s Ayvazian.
Sprint has struggled with customer service issues. Some have said its 2005 purchase of Nextel Communications was a failure as it failed to integrate the different networks.
Sprint last month posted a 77 percent drop in quarterly profit to $64 million, or 2 cents per share, as it lost more subscribers. The company withdrew a 2008 profit target and said it would give an outlook early next year.
Many analysts said Hesse, who had been chairman and CEO of Embarq since its inception in 2006, was well-practiced in improving operations. Embarq stepped up its cost cutting by consolidating call centers, and boosted its high-speed Internet business to make up for a fall in standard phone subscribers.
Embarq shares, however, have been falling amid concerns of increasing competition from cable service providers. The shares fell 36 cents to $47.30 in Tuesday trade, a low for the year.
Embarq named its general counsel, Tom Gerke, as interim CEO and said he would be a strong candidate for the post. The company said its board plans early next year to consider an increase in cash returned to shareholders.
Updates prior Reuters version to include Hesse’s first name.