Unintended Consequences
Today’s telecom and business news sources are trumpeting headlines like “Sprint: Rethinking WiMAX?“ All this sparked by comments made by Gary Forsee, Sprint’s chairman and CEO, at an investor conference earlier this week.
I cannot claim to have any insight into the actual options that Gary was referencing (and if I did, I couldn’t write this post), but I do know Sprint’s intentions and they have been very publicly shared.
Sprint’s WiMax initiative is integral to the company’s overall focus on the mobility revolution. There are strong synergies between the voice-handset-centric wireless activities (inclusive of our EV-DO data capabilities) that represent Sprint’s core business, and the data-centric activities of Sprint’s WiMax efforts. WiMax is the natural extension of Sprint’s current efforts to the next generation of technology, capability, and business model. The WiMax initiative gains tremendous advantage through close association with Sprint, leveraging the existing brand, existing sales channels, and existing customer base.
Bottom line - I do not believe the intent of the options Gary referenced have anything to do with creating a separate entity that operates independently of Sprint’s core business.
Again, I don’t know the details of any of the options referenced, but I do have historical perspective from a different period in telecom history.
In 1996, I was working for Williams Communications, and was asked to develop the strategy for a potential new nationwide fiber network. At the same time, we knew that several other companies were considering building new nationwide fiber networks. Building a nationwide network (whether fiber or WiMax) ain’t cheap and creating significant capacity in advance of demand can create a supply/demand imbalance that can kill any business case, so, at that time, the industry acted wisely.
Williams agreed to partner with IXC to jointly build a nationwide network - Williams would build part of the country and IXC would build part of the country, and the companies would swap dark fibers so that each would end up with a nationwide network, while minimizing capital and reducing the risk of over-capacity.
Similarly, Qwest and Frontier partnered to share the cost of building a new nationwide fiber network, again reducing each company’s dedicated capital, while achieving nationwide coverage, and minimizing the likelihood of a capacity glut.
These deals were wise moves. Unfortunately, in June 1997, Qwest had a very successful IPO. Suddenly, investment bankers were all over the remaining fiber players, and VCs were all over potential startups. Wall Street seemed to be valuing Qwest based on the number of fiber miles the company owned outright - so the financial counselors were encouraging companies to throw caution to the wind and build rather than lease/partner. Before long, there were lots of companies with big empty fiber networks, anxious to fill them up with paying customers.
The rest, as they say, is history.
Again, not knowing the details, my guess is that Gary’s intent earlier this week was to indicate discretion and wisdom, considering ways to reduce the capital expenditures, especially by drawing in a partner that may otherwise duplicate some or all of your footprint, all the while maintaining the opportunity to integrate a full nationwide footprint into your long term business needs.
A few words, spoken with the right intent, however, sometimes have unintended consequences…