CEO leaves, Sprint's woes stay

Sprint Nextel said Monday that Chairman and Chief Executive Gary D. Forsee will step down immediately, just two years after directing the $35 billion merger that created the nation's third-largest wireless company.

Forsee's main job at the Reston, Va., company was to parlay the merger into a telecom powerhouse while charting a lucrative path in the growing and intensely competitive wireless industry.

He failed to accomplish those goals in the view of Wall Street and the company's board of directors.

His departure leaves Sprint at a difficult crossroads. The merger pitched two years ago as a combination of complementary companies has fallen flat, leaving engineering problems with the new network, putting Sprint's stock in a downward spiral, and sending customers fleeing to larger rivals.

Forsee, who has described himself as a leader capable of executing plans, came under fire for failing to bridge the cultural and technical gaps between the two companies and to forge a solid course for Sprint's financial future.

As the company tried to phase out the Nextel network, consumers experienced dropped calls and a smaller coverage area.

Rivals grew by emphasizing superior networks or better value, while Sprint's ad campaign failed to establish its place in the market.

With more than 80 percent of the U.S. population carrying a cellphone, wireless carriers are ruthlessly competing for one another's customers.

"Sprint's not starting with a clean slate, but it will at least be able to reset expectations now that Forsee is gone," said Michael Nelson, an equity analyst with Stanford Group. "Of all the wireless carriers, Sprint is the only one that still hasn't found its identity."

Sprint has formed a committee of board members to conduct an outside search to fill Forsee's position. Meanwhile, board member James Hance Jr., a senior adviser at Carlyle Group, a private-equity firm, will be acting chairman. Paul Saleh, Sprint's chief financial officer, will be acting CEO.

Forsee was not available for comment.

The board was unhappy with Sprint's recent performance. Sprint warned Monday it expects to lose 337,000 more monthly customers in the current quarter and lowered its annual revenue expectations.

Some analysts and academics cite the marriage of Sprint and Nextel as a case study of a poorly conceived merger.

Their wireless networks were largely incompatible, and the companies' cultures were worlds apart.

Sprint was more than a century old and had a legacy in the local and long-distance telephone business. Nextel was barely a decade old, a scrappy up-and-comer that had cobbled together its network out of cab companies' walkie-talkie licenses.

Sprint's strength in wireless came from its consumer appeal More than 90 percent of Nextel's customers came from the blue-collar work force.

The companies' headquarters were also separated by half a continent, and more than half of the company's work force remains in Overland Park, Kan., Sprint's old headquarters.

Whereas Nextel targeted higher-paying business users, Sprint had a bigger base of subscribers with poor credit and unsuccessfully tried to transfer customers from the strained Nextel network to its own.

Initially, the company cast the merger as financially sound, promising some $14.5 billion in savings through 2008. But combining operations has cost far more than either company initially bargained for.

During the first six months of 2007, two full years after Sprint and Nextel combined, the company attributed $262 million as merger expenses.

It further warned the merger "could prevent or delay our realization of the cost savings and other benefits we expect to achieve as a result of those integration efforts."

Sprint's stock has fallen 21.7 percent since the merger, closing down 51 cents Monday at $18.50.

One of Forsee's most controversial moves was to commit $5 billion to building a new high-speed wireless network using a new technology called WiMax, which he promised would be up to five times faster than current cellular networks.

He forged partnerships with Kirkland-based startup Clearwire to construct the network; Google to search on the network; and Motorola, Samsung and Nokia to build cutting edge-devices to roam on the network.

But he wanted to use WiMax technology, which met skepticism from analysts because it is largely untested. The build-out has already hit delays.

That has also hurt Clearwire's stock, which tumbled 13.7 percent Friday on concerns about its partnership with Sprint.

Staff writers Frank Ahrens and David Cho contributed to this report.