When Sprint announced that chairman Masayoshi Son was finally dumping chief boondoggle officer Dan Hesse, I figured it’s about time. After seven years, nearly $20 billion in red ink, huge subscriber losses, a failed merger with T-Mobile and blessing customers with the slowest 4G LTE network in America, it was about time.
Continue Reading Below
But when Marcelo Claure’s name came up as Sprint’s new CEO, I said, “Who?” As the founding CEO of Brightstar – a privately held wireless distributor with about $10 billion in annual revenue – he wasn’t exactly a household name. But then, I expected no less than a bold choice from Son, who’s known to be a gutsy risk-taker.
After all, Son was an early investor in Yahoo and Alibaba, built Softbank into a $40 billion wireless and Internet powerhouse and became the richest man in Japan in the process. It came as no surprise that he would turn Sprint over to a fellow entrepreneur who knows how to build a company from scratch. But that’s not the same as a turnaround.
Having been on the job for just 16 months, it’s probably too soon to tell if Son blundered when he bought a majority stake in Sprint and hired Claure to execute a challenging turnaround that eluded Hesse for so many years. It’s not as if Verizon, AT&T and T-Mobile are simply going to hand over hard-fought subscribers and market share.
Truth is, turnarounds are extremely hard to achieve, which probably explains why they’re so rare.
But Claure does have a plan. He’s reportedly going to upgrade Sprint’s network, cut billions in operating expenses, reignite what Son once called a “loser” company culture with a hands-on management style and new executive team, and fund all that through creative equipment leasing vehicles and parent Softbanks’ deep pockets.
Continue Reading Below
And all that is supposed to enable Sprint to stem chronic subscriber losses, start gaining market share and turn a profit. Makes sense to me. But what doesn’t make sense is paying a team of consultants more than $25 million while executing a major and majorly unpopular cost-cutting effort. One thing’s for sure. That did not go over well.
According to the Wall Street Journal, Claure hired former telecom executive Sol Trujillo to lead a team of a dozen or so consultants to advise on the company’s operations and network. Do the math. That’s $2 million a person for five months of work. That’s a lot of dough. Those must be some pretty smart consultants. Or maybe not.
Turns out that Trujillo has been a mentor of Claure’s for many years. And as CEO of Telstra, he awarded Claure’s Brightstar a long-term contract to manage distribution of the Australian telecom giant’s phone operations. The deal lasted five years. That had to be lucrative.
Far be it from me to suggest that the sweet consulting gig at Sprint could be quid pro quo for the Telstra deal, but at what point does a mentorship-business relationship become cronyism? When the deal is negotiated solely by the pair behind closed doors, and it’s too lucrative to make sense, especially considering Sprint’s extreme fiscal woes.
According to the Wall Street Journal, the deal was supposed to span a year and be worth $50 million, but after Son met with Trujillo and disagreed with many of his recommendations, the consulting team packed up and called it quits. So much for that.
Meanwhile, Sprint continues to bleed red ink and lose subscribers – not just to Verizon and AT&T; it’s even fallen behind T-Mobile in market share. And while the carrier has shown some improvement in network quality, it simply can’t continue to bribe subscribers with half-price deals to switch indefinitely. At some point, its growing mountain of debt will come crashing down.
In an interview with the Kansas City Star, Claure said he expects to turn the Overland Park, Kansas company around in three to five years. But after seven years of Hesse, does he really have that long? Shares of Sprint are down about a third since Claure took over so Wall Street doesn’t appear to be all that excited about his progress, to date.
And you’ve got to wonder just how long Son’s patience will last before he admits that upending the U.S. wireless market is a lot harder than it looks and decides to cut his losses. He doesn’t strike me as a particularly patient man. After his little run-in with the consultants, I suspect Claure is now very much aware of that, as well.