Sprint Nextel Corporation

A SEER Lens Approach

Jessica J. Chen
April 11, 2011
Graziadio School of Business & Management
OTMT 645
Professor Michael Crooke
Executive Summary

A company is truly sustainable when it operates as a Socially, Environmentally, and

Ethically Responsible (SEER) business. It must excel in all four components of the SEER lens:

quality product or service, financial strength, corporate social responsibility, and environmental

stewardship. Ideally, these values are embedded into the company’s mindset and collectively

shape every decision it makes. Exhibit 1 illustrates the interconnectivity of the four quadrants -

each quadrant has its degree of relation to most, if not all, business strategies. Therefore,

company initiatives should be formulated using the SEER mentality to ensure all vital factors are

considered.

Sprint Nextel Corporation is a Fortune 500 telecommunications company that has

experienced its share of struggles during the past five years. This report evaluates the company by

discussing its market strategies through the SEER lens and provides a competitive analysis. It

concludes with recommendations for Sprint as the company moves forward into exciting new

ventures.

Company Overview

Incorporated in 1938, Sprint Nextel Corporation is mainly a holding company, with most

of its operations conducted by subsidiaries. Its headquarters are in Overland Park, Kansas and it

operates in the United States as a wireless company using CDMA technology. It was the first to

provide wireless 4G service from a national carrier in the United States and owns a global long

distance Tier 1 Internet backbone. The company offers a wide range of wireless and wireline

communications products and services used by individuals, businesses, and the government.

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Sprint acquired Nextel Communications in 2005 and owns Boost Mobile® and Virgin Mobile®,

both of which offer prepaid price plans including unique nationwide monthly unlimited, pay as

you go, and $1 per day chat plan options. Sprint Nextel also provides a host of wireline voice and

data communications services including Internet Protocol, or IP, wide-area network and long

distance services. The company served more than 49.9 million customers at the end of 2010 and

is proud to be ranked No. 6 by Newsweek in its 2010 Green Rankings.

Market Strategies

As an established company, it comes as no surprise that Sprint has embraced all four

SEER values to some degree. However, some areas are better managed than others, which will be

discussed in the following analysis.

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 In the quality product and service quadrant, Sprint scored a B rating. The company is

mainly a service-oriented business offering wireless and wireline coverage plans to

approximately 50 million customers. Since the acquisition of Nextel, Sprint has struggled to

operate the two incompatible wireless networks under one management team. According to the

Associated Press, the acquisition was “widely hailed as one of the most disastrous deals in the

telecommunications industry.”

Nevertheless, the services provided by Sprint are on par with the other industry leaders,

which include an extensive 3G network, national push-to-talk network, the latest 4G services, and

all-digital long distance services. The accompanying contract-based and prepaid wireless price

plans available through Sprint are comparatively aggressive. For example, its “Any Mobile

Anytime” feature of the “Everything Data plan” is among the most cost-effective options

available on the market. Users are allowed unlimited domestic calls to any cell phone regardless

of the carrier, unlimited data usage on the web, and unlimited text messaging – all for the low

monthly charge of $69.99. Sprint places an emphasis on providing the best service at the lowest

cost, which is evident in its marketing. Most all of its advertisements attempt to drive home the

message of delivering the best network with hassle-free, all-inclusive packages at budget-

conscious prices. Today, the quality of the wireless service available to consumers is almost

indistinguishable from provider to provider. It has become a necessity rather than a point of

differentiation for Sprint to be on the forefront of wireless technology. As such, Sprint is focusing

too much on telling consumers how great their service is when in fact, these claims do not appeal

to its target market.

In addition to the services Sprint provides, it offers products in the form of smartphones,

mobile broadband devices such as aircards, laptops to be used with its voice and data services,

accessories, and more. At first glance, this suite of products looks no different compared to other

wireless and wireline carriers. However, rather than paying attention to market trends, Sprint has

failed to deliver the coveted handsets and user experience that the current tech-savvy generation

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craves. Competitors like Verizon, T-Mobile, and AT&T have consistently secured deals with

trend-setting handset companies like Apple, RIM, Samsung, and HTC, who continually raise the

bar in product functionality and compatibility. On the other hand, Sprint has been busy making

deals mainly with Sanyo and Kyocera, only adding more popular devices from Samsung, LG, and

Motorola post-craze. This misguided direction has and continues to cost the company millions in

lost revenue. But the situation is not entirely hopeless: recently, Sprint has introduced a handful

of promising products that could turn this ship around. The company was the first in the U.S. to

offer a 4G phone, the HTC Evo™, which was recently named Best Phone by CNET. It is

currently in the pre-order phase of the cutting-edge Nexus S™ 4G from Google™. It also

launched the Samsung Restore in April 2010, Sprint’s third eco-friendly device that received a

rating of 3.5 stars from CNET for its innovation, recyclable materials, and industry-standard

features. Overall, Sprint’s respectable service offerings paired with its unattractive suite of

products earned the company a B rating in the product and service category of the SEER lens.

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 In the financial strength quadrant, Sprint Nextel scored a C rating. Over the past decade,

the company faced multiple significant incidents, including the acquisition of Nextel

Communications in 2005 and the departure of Chairman and CEO, Gary D. Forsee in 2007. Just

as the company struggled with adjusting to the changes, the economy took a turn for the worse.

Sprint was certainly not exempt from the effects of the recession as its stock dropped from $22.15

a share to a mere $1.58 from 2007 to 2008 (See Exhibit 2). Since then, Sprint’s stock has been

trading steadily around $4.25.

To better understand the acquisition and its financial implications, consider its market

capitalization. At the time of the deal, Sprint had a market capitalization of approximately $33

billion, as did Nextel. In 2008, the combined company had a market cap of under $30 billion.

Today, this figure has shrunk to $14 billion. From an operational standpoint, the situation only

worsened. According to the Wall Street Journal, Sprint Nextel lost 1.2 million postpaid

subscribers in 2007 alone, with one of the highest churn rates in the industry. This statistic is

disheartening, bearing in mind that Nextel had one of the lowest churn rates prior to the merger.

To make matters worse, Sprint had “disproportionate exposure to some of the same high-risk

customers” that had defaulted on their mortgage loans.

The good news is that Sprint Nextel reported an increase in its quarterly revenues in

October 2010, the first increase in three years. Revenue rose 1% to $8.15 billion, up from $8.04

billion in 2009. Due to the decline of the Nextel operations, Sprint continued to lose contract-

based subscribers, which are the most profitable. Its walkie-talkie phones were popular with blue-

collar workers and other professionals, but the Nextel network did not work well with

smartphones, killing the core Nextel customer base.

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 Sprint recognized that there was an underserved market of customers who needed

cheaper solutions to owning a cell phone, especially during this period of time when

unemployment rates and foreclosures skyrocketed. It began a new strategy in May 2010 to boost

its prepaid subscriptions, offering more bargain-priced plans that target middle-aged Americans

who only make occasional phone calls and younger users who primarily text versus make calls.

In the first quarter of 2010, Sprint lost about 578,000 contract-based customers but gained

348,000 new ones through its prepaid plans. The company breaks even on a prepaid customer

after half a year, twice as fast as a contract-based customer. However, since they pay less monthly

and are not locked into a contract, sales from the prepaid wireless sector are not sufficient for

Sprint to be financially sustainable.

In 2006, Sprint Nextel was ranked No. 59 of the Fortune 500 list of America’s largest

corporations. Their revenue for the year was $34,680 million and reported $1,785 million in

profits. Last year, the company’s revenue was $32,260 million and its loss was -$2,436 million,

dropping its ranking to No. 67. Sprint’s current return on assets is -11.30% and return on

investments is -16.20%, demonstrating ineffective management. Prepaid customers are currently

the main growth segment in the wireless market, but Sprint cannot count on this segment to

restore the company’s financial health. This is proven by its current profit margin of -10.60%.

Due to its financial instability, poor management of the acquisition, and unsustainable response to

the weak economy, Sprint earned a C rating in the financial strength category of the SEER lens.

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 In the corporate social responsibility quadrant, Sprint Nextel scored an A rating. Below

is a direct quote taken from the company’s website that describes its approach to corporate

responsibility:

A company is much more than the products and services it sells; the effect a company has
on the environment, the people and the communities it serves reflects the company’s
dedication to being not only a good business, but to being a good corporate citizen.

And Sprint, a veteran in citizenship efforts ranging from wireless recycling and
renewable energy in its networks to its character-education grants program is fully
engaged in ensuring it does its part to incorporate corporate responsibility into every
major touchpoint of its business.

This CSR-based mission is stated attractively in theory, but the real evidence of success in this

SEER value can be found in the many supported company initiatives. Although Sprint has been

giving back to its community for many years, it realized a need for a committee dedicated to

organizing these initiatives and established the Corporate Responsibility Steering Committee in

2008. The committee is comprised of individuals including the CEO, CFO, and VP of HR. Sprint

published its one and only CSR report in 2007 and plans to release its second one in June 2011

which will include an interactive GRI index.

Sprint strives to take good care of its employees including health, wellness, and safety.

For example, when the current headquarters in Kansas was being built in 1997, it was important

to the company to include a state-of-the-art fitness center that now offers a host of group exercise

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programs and healthcare services. The company is committed to workforce diversity and has

received much recognition for this commitment to inclusion. A couple of Sprint’s notable

accomplishments include being named one of Forbes’ Top 20 Most Responsible Companies in

Diversity Initiatives and receiving a perfect 100% score on the Human Rights Campaign’s annual

Corporate Equality Index for three consecutive years.

Externally, Sprint has made strides in customer service satisfaction by better managing

the entire customer service experience. Consequently, the company has won the Wholesale

Excellence awards for brand, provisioning, network and customer service – more awards than any

other U.S. carrier given by research firm Atlantic-ACM. It also earned 2 nd place in a retail

satisfaction study conducted by J.D. Power & Associates, ahead of AT&T and Verizon. Business

practices aside, Sprint supports its local communities through the Sprint Foundation, which was

founded in 1989. This foundation currently focuses on key employee communities such as

Kansas City, Chicago, and Los Angeles. It uses direct grants and employee contribution matching

to support K-12 education, the arts, and youth mentorships. The latest public information

provided by the company shows that the Sprint Foundation grants totaled over $6.5 million in

2008. Sprint’s long tradition of corporate social responsibility proves that this SEER value is

fully embedded into the company’s DNA, earning it an A rating in this quadrant.

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 Closely related to corporate social responsibility is the environmental stewardship

component in which Sprint Nextel scored a B rating. Sprint reported an overall reduction in its

environmental impact of its products and services, but admits that it is working on developing a

clear, measurable metric for determining this impact quantitatively. This may be a large reason

why Sprint has not released a second CSR report since its first in 2007. Regardless, the company

is proud of its recognition in this space – it was ranked No. 6 by Newsweek in the 2010 Green

Rankings and won the 2010 Sustainability Leadership Award at the International Electronics

Recycling Conference. It also took home the PRSA Silver Anvil Award of Excellence for the

“Make it Easy to Be Green” Program. It has switched to hydrogen fuel cells, boasts offering the

most eco-friendly cellphones in the U.S., and is the first U.S. wireless company to announce its

greenhouse gas emission reduction goal. From 2007 to 2009, the company calculated a gas

emissions reduction of 9% and aims to increase this percentage to 15% by 2017. Since 2001,

Sprint has collected about 24 million phones for recycling and currently has a 41% device reuse

and recycle rate. Of the 3.7 million phones collected in 2009, about 90% were reused as

refurbished phones. Naturally, as a company that relies on the sale and usage of its devices, Sprint

has plenty of room to improve its environmental impact. Because the company has set tangible

goals and is already starting to see the results, it earned a B rating in the environmental

stewardship category of the SEER lens.

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Competitive Analysis

Competitors Profit Margin Market Cap Strengths Weaknesses

Sprint -10.6% $14.14B Customer service, Effects of Nextel

CSR, industry pioneer merger, Financial
in sustainability, struggles, Weak
leader in prepaid marketing
services

Verizon 2.4% $105.62B Fiberoptics, Largest Higher price-point,

wireless service Generally risk-
provider in U.S. by averse (follower)
total customers,
Provider of iPhone 4

AT&T 15.98% $155.41B First provider of Weaker wireless

iPhone, pending network service
merger with T-Mobile

Recommendations

Sprint has done a poor job of attracting its target market, the tech-savvy consumers. It has

painted an embarrassing picture for itself as the uncool, cheaper knock-off carrier with a bland

phone selection. Since the quality of available wireless services in the market is fairly equal

between providers, cell phone users no longer consider this as an added value. What appeals to

consumers today is the user experience provided by the most innovative brands. The best thing

Sprint can do to climb out of the current stagnant rut that it has been in is to claim first provider

rights to a lineup of new Android-based smartphones through the big name brands: Samsung,

HTC, and LG. The HTC Evo™ 4G and soon to come Nexus S™ are two phones that give the

resurgence of Sprint a great start. Additionally, Sprint must sever ties, at least temporarily, with

the smaller brands such as Kyocera and Sanyo that are dragging down the company image. In

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doing so, Sprint has a chance at reclaiming market share by properly responding to consumer

demand. In support of this fundamental shift in the business focus, the marketing department

needs to also shift its focus to bring attention to the exclusivity of its premier product line.

From a corporate social responsibility stance, Sprint needs to continue to set its standards

high and make it a priority to be involved in its community. By taking care of its employees and

supporting the Sprint Foundation, the company is ensuring a more pleasant work environment

and fostering brighter local communities. As the company works toward a more stable financial

footing, it is not advisable to pump more dollars into these programs for the time being.

Sprint must work with its vendors to demand the use of more eco-friendly materials and

sustainable packaging for both phones and accessories. Now that the company has three eco-

friendly phones on the market, it needs to work on improving the phones’ functionality – most

customer ratings reveal that the quality and interface of these devices are lacking in technology

found in other phones on the market. Then, Sprint can generate more publicity around its Eco-

Logo that designates wireless devices that score above the necessary benchmark on the Sprint

“eco-criteria”. This set of criteria that the company uses to evaluate its products’ environmental

performance has the potential to become an industry standard.

As Sprint implements these recommendations, it will experience a revival in

subscriptions as its highly coveted cell phone selection finally compliments its award-winning

service, leading to a financial recovery.

1. Claim first provider rights to a lineup of new Android-based smartphones

2. Stop carrying Kyocera and Sanyo phones

3. Continue CSR efforts

4. Work with vendors to use more eco-friendly materials

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 5. Improve functionality of eco-friendly devices

6. Publicize Eco-Logo and eco-criteria

7. Closely monitor profits

Appendix

Exhibit 1

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http://bschool.pepperdine.edu/programs/full-time-mba/seer/

Exhibit 2

http://www.sharebuilder.com/sharebuilder/Research/MarketUpdate/Charts.aspx?Symbol=S

References

Hart, Kim. (2007, Oct 9). CEO leaves, Sprint’s woes stay. The Seattle Times. Retrieved from

http://seattletimes.nwsource.com/html/businesstechnology/2003934957_sprint09.html

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Moore, Heidi N. (2008, February 1). Is Sprint Nextel Worth Saving? The Wall Street Journal.

Retrieved from http://blogs.wsj.com/deals/2008/02/01/is-sprint-nextel-worth-saving/

Salam, Reihan. (2011, March 22). Further Thoughts on AT&T + T-Mobile. National Review

Online. Retrieved from http://www.nationalreview.com/agenda/262781/further-thoughts-

att-t-mobile-reihan-salam

Sheth, Niraj. (2010, May 6). Sprint Nextel Adds Prepaid Brand, Cuts Prices on Another. The

Wall Street Journal. Retrieved from

http://online.wsj.com/article/SB10001424052748704370704575227770663288134.html

Sprint. (2011). About Sprint Nextel: News, Investors, Sprint Jobs & Sponsorships. Retrieved from

http://www.sprint.com/about/

Sprint. (2011). Corporate Responsibility. Retrieved from http://www.sprint.com/responsibility/

Sprint Nextel Corporation. (2007, September 25). Corporate Social Responsibility Report.

Retrieved from http:// www.sprint.com/responsibility/environment/docs/csr_report.pdf

Sprint Nextel Corporation. (2010). Form 10-K for the fiscal year ended December 31, 2010.

Retrieved from http://investors.sprint.com/phoenix.zhtml?c=127149&p=irol-

reportsannual

The Associated Press. (2010, October 27). Prepaid Service Pushes Sprint Nextel Revenue Up.

The New York Times. Retrieved from

http://www.nytimes.com/2010/10/28/technology/28sprint.html

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