Sprint CEO Hesse: The Duopoly Has to Go

The CEO of Sprint Nextel (NYSE: S  ) didn't hold much back in talking to the press at company headquarters in Overton Park, Kan., this week.

Dan Hesse said he thought that a merging of companies is good for the wireless industry -- as long as it wasn't Verizon (NYSE: VZ  ) or AT&T (NYSE: T  ) doing the concentrating. Sprint is a distant No. 3 to those other carriers, and Hesse wants to do everything he can to keep those companies within sight.

"The industry has to deal with the issue of the duopoly. The gap between No. 2 and No. 3 players is enormous," he told reporters. "We always have been and always will be open to further consolidation, as long as it isn't AT&T or Verizon Wireless."

The current situation with AT&T and Verizon seemingly unapproachable is "not healthy" for the wireless industry, he said. "The industry does have an issue with the size of the duopoly of AT&T and Verizon."

Hesse tried last winter to put a little more flesh on Sprint's bones in a secretive attempt to gobble up MetroPCS (NYSE: PCS  ) . Sprint's board of directors, however, had other ideas and put the kibosh on that idea. It did not think that paying a 30% premium for MetroPCS was a good move.

Hesse certainly hasn't been shy about spending Sprint's cash in its attempt to keep up with the big boys. At his urging, the company signed a four-year deal with Apple (Nasdaq: AAPL  ) to buy $15.5 billion worth of iPhones. Those iPhones may have been necessary to stem the churn of customers with iPhone envy from an exodus to AT&T and Verizon, but it was a Faustian deal: Each iPhone Sprint sold shaved its profit margin a little more because of the phone's high subsidization cost.

Still, he told reporters, looking at the iPhone's popularity, "We saw no reason to bet against Apple."

Apocolypse... now?
Hesse also seemed to be likening Sprint's struggles in competing with AT&T-Rex and Big Red as a fight against good and evil. Sprint wants to wear the white hat, according to Hesse. "At Sprint, we describe it internally as being the good guys, of doing the right thing," he said.

One of those "right" things, according to Hesse, is continuing to offer unlimited data plans, something the duopoly has ceased to do.

With Sprint's margins improving and its average revenue per user starting to head in a positive direction, the company's future may seem a bit brighter. But Hesse is not ready to give two thumbs-up. "What you're not going to see around here are any mission accomplished signs," he said.

At least not while there are only two hungry giants roaming the countryside.

The company that the iPhone is really helping, of course, is Apple itself. To get the full scoop on one of the pre-eminent names in technology today, just click here to grab your copy of the Fool's new premium report on Apple.

Fool contributor Dan Radovsky owns shares of AT&T. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 08, 2012, at 2:33 PM, woodyherman wrote:

    Hesse made millions as CEO of ATT wireless by selling to Cingular.

    He helped create ATT wireless of today. He also took Nextel which had built such a strong business following and ran it into the ground.

    When a CEO cannot be backed by his board on business decisions it is time to go.

    It is fun to play cowboys and indians and always think you are the good guy but the 250,000 employee's at ATT are working hard to take care of their customers while Sprint continues to spend to try and recover.

    How can anyone invest in a company with such a pathetic leader who had to sell the last company he led after running it into the ground.

    If Sprint's employees want to be the good guys, get to work and take care of the customers you have. What would happen if sprint did start building it's base? they would fail as they do not have the bandwidth and cash flow to invest because of continued failed ventures.

  • Report this Comment On August 08, 2012, at 8:32 PM, LowellUkulele wrote:

    Taking into account the whole U.S. market, a combination of AT&T and T-Mobile would have increased the Herfindahl-Hirschman Index (HHI), a widely accepted measure of market concentration, to 3,216 from 2,848, according to a Bloomberg analysis. Any score above 2,500 indicates a highly concentrated market, and any increase of more than 200 points clearly enhances market power, according to federal guidelines.

    “It’s only a slight overstatement to say that if they weren’t going to block this one, the Justice Department might as well just throw the antitrust guidelines out the window,” said Herbert Hovenkamp, professor of law at the University of Iowa, who is considered by many to be the dean of American antitrust law. “This merger clearly seems to violate them,” he said at the time.

  • Report this Comment On August 08, 2012, at 8:36 PM, conradsands wrote:

    It was the former CEO of Sprint, not Hesse, who took the call from the then Nextel CEO, who wanted to do a deal when he saw the upcoming limitations of Nextel's iDen network in a smartphone world.

  • Report this Comment On August 08, 2012, at 8:36 PM, conradsands wrote:

    It was the former CEO of Sprint, not Hesse, who took the call from the then Nextel CEO, who wanted to do a deal when he saw the upcoming limitations of an iDen network in a smartphone world.

  • Report this Comment On August 08, 2012, at 8:38 PM, HSprague wrote:

    Consumers are finally noticing that AT&T and Verizon = The Most Expensive Wireless Plans in America. For the post-paid customer, the fact remains that Sprint is the only U.S. carrier to offer them the iPhone experience with unlimited data plans starting at $79.99 per month. Plus, Verizon now charges its customers $30 to upgrade to a new phone when they renew. AT&T charges $36. But Sprint only charges $18. An investment writer recently summed it up best: “Sprint offers the best value proposition for a new smartphone user. I got my first smartphone on Sprint because a new AT&T or Verizon data plan is outrageous. My Sprint plan includes 450 afternoon mobile-to-landline minutes, unlimited other minutes, and unlimited texting and data for $79.99. Unlimited AT&T or Verizon plans would approach $150, and to get a comparably-priced package, I'd have to settle on limited data or texting plans, which I'd have to constantly try to not blow through. Why get a smartphone if you can't have fun using it?” Sprint also placed first in the industry in customer satisfaction, according to results from the 2011 and 2012 American Customer Satisfaction Index.

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