Technology

Sprint is ending pursuit of T-Mobile, sources say, and replacing Dan Hesse as CEO

AP

Sprint Corp. has dropped its long efforts to acquire rival T-Mobile US Inc. and will replace chief executive officer Dan Hesse as early as Wednesday, published reports said.

Unconfirmed reports put Sprint board member Marcelo Claure in the CEO spot. He is the founder and head of Brightstar, which like Sprint is a property of Tokyo-based SoftBank Corp.

The shakeup in strategy and leadership was reported variously and according to unnamed sources by The Wall Street Journal, Bloomberg News, The New York Times and Recode.net.

An announcement expected early Wednesday follows a reluctant conclusion that federal regulators won’t approve a merger between the nation’s No. 3 and No. 4 wireless phone companies.

Sprint’s decision, reportedly made by Sprint’s board Tuesday afternoon, comes as it recently completed a massive upgrade of its network equipment and focused its marketing efforts on pitching its improved quality.

The Overland Park company also is working to rev up its network’s Internet connection speeds, which badly lag the other national carriers. That plan, dubbed Sprint Spark, is available in some markets now but will need until the end of 2015 to be completed. Sprint says that by then it will surpass the speed of rivals’ networks.

Separately, it was reported Tuesday that T-Mobile will reject a $15 billion bid from a French wireless company called Iliad SA that had valued T-Mobile’s shares at $33 each. Sprint and T-Mobile reportedly had worked out the broad outlines of a $40 a share deal valued at $32 billion.

Other reports said Iliad was reaching out to other investors in an effort to boost its bid. Its pursuit of T-Mobile has drawn questions in part because Iliad is a much smaller company and would enjoy few of the cost savings that a merger between Sprint and T-Mobile would expect.

SoftBank founder and Sprint chairman Masayoshi Son had campaigned publicly through much of the spring for a T-Mobile merger that he said would create a larger and potent rival for No. 1 Verizon and No. 2 AT&T. But such a merger would require the consent of the U.S. Department of Justice and the Federal Communications Commission.

Verizon and AT&T each have more than twice as many subscribers as Sprint and T-Mobile have alone. Son, and others, argued that the smaller companies needed greater scale to take on the two giants dubbed the “duopoly” for their shared dominance of the U.S. wireless market.

Scale is critical in the wireless business. Each of the national carriers spends billions to build, maintain and update ever more expensive wireless networks, but AT&T and Verizon have many more paying customers to shoulder the costs.

Federal officials, however, have made clear that they prefer having four national wireless competitors to having only three. They rejected a 2011 agreement that would have seen AT&T buy T-Mobile for $39 billion, saying that deal was anti-competitive and that T-Mobile should be preserved as an industry “maverick.”

As recently as last week an official of the FCC seemed to knock down a Plan B approach the companies purportedly hatched. They had considered bidding jointly for valuable airwaves licenses from the FCC next year and sharing the resources for their wireless networks.

Outsiders imagined all sorts of scenarios SoftBank and Sprint might use to sway regulators — including one that would scuttle the Sprint brand and use T-Mobile’s — but, in the end, the decision to pull the plug prevailed, according to the reports.

The decision casts the companies apart in very different circumstances.

Sprint reported a rare profit in the second quarter but shed 245,000 high-revenue subscribers. It has lost more than 12 million of these highly valuable subscribers since Hesse became chief executive late in 2007. It has 54.6 million total subscribers.

Meanwhile, an aggressive campaign at T-Mobile added 908,000 branded customers in the second quarter and capped a year-long string of surprising subscriber growth. It now has 50.5 million total subscribers.

Scott Sloat, a spokesman for Sprint, declined to comment on Tuesday’s reports, as did Anne Marshall, a spokeswoman for T-Mobile. Matthew Nicholson, a Tokyo-based spokesman for SoftBank, also declined to comment.

Hesse’s exit would come after he labored for nearly seven years to right a sinking ship when he came aboard on Dec. 17, 2007. Predecessors had engineered a merger with Nextel Communciations that failed to bring many of the benefits mergers are intended to deliver.

Sprint, under Hesse’s command, focused on improving customers’ experiences, bolstering the damaged Sprint brand and efficiently managing the company’s scare cash reserves.

In June, Hesse had said in Kansas City that he would be happy running Sprint or stepping aside if another choice made sense for the company.

“I have a lot of alternatives,” he told The Kansas City Star’s Steve Kraske on his KCUR radio program.

SoftBank’s acquisition last summer fattened Sprint’s checkbook, allowing it to hasten its efforts to build a faster wireless network.

Hesse’s reported successor, Marcelo Claure, is a native of La Paz, Bolivia, who built his tiny company into a $1.26 billion deal with SoftBank last year, according to a profile in the South Florida Business Journal. It said Claure talked his way into the job as general manager of the Bolivian Soccer Federation during an airline flight, sitting next to the federation’s president.

Brightstar, based in Miami, helps companies with wireless services and devices, including acquiring and managing inventories and selling and recycling them. SoftBank bought a 57 percent stake in Brightstar last October, paying $1.26 billion.

They formed a joint venture called the Buying & Innovation Group, or BIG, to negotiate better terms with suppliers to SoftBank, Sprint and Brightstar, which has global operations.

At Brightstar, “we have built a corporate culture that is easy to replicate in each new country and provides a values system that employees embrace and excel in,” Claure told the Florida publication. “It’s a winning combination that any organization can emulate if they have the right mindset.”

Son, conversely, had said early this year that Sprint needed “a change in mindset” and that it had “gotten used to being a loser,” according to the Nikkei Asian Review’s English translation of Son’s interview, which had been conducted in Japanese.

Star news services contributed to this report.

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com. Follow him on Facebook and Twitter @mdkcstar.

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