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Embarq's Hesse Is New Sprint Nextel CEO

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DAVID TWIDDY | December 18, 2007 05:31 PM EST | AP

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KANSAS CITY, Mo. — Sprint Nextel Corp. reached out to a familiar face Tuesday in its search for a leader to overcome disappointing subscriber numbers and make the nation's third-largest wireless provider competitive again.

The Reston, Va.-based company named Dan Hesse, chairman and chief executive of wireline company Embarq Corp., as its new president and chief executive officer.

"This is not a quick fix, this is not going to happen overnight," Hesse, 54, said in an interview. "But the ultimate goal is to get to a leadership position in the industry."

Hesse, an almost 30-year telecommunications veteran who at one time ran AT&T Wireless, operated Sprint's local telephone division for a year before it was spun off to form Embarq last year. Both Embarq and Sprint's operational headquarters are based in Overland Park, Kan.

He replaces Gary Forsee, who was ousted from Sprint Nextel in October following several quarters of falling subscriber numbers and other operational troubles.

The selection of Hesse, whose name was mentioned early as a possible CEO replacement, was greeted with approval from most industry observers Tuesday.

"He has never lost sight of that business," said Berge Ayvagian, chief strategy officer for research firm Yankee Group. "He knew his job was to spin off Embarq successfully, and I think he's done a remarkably good job with that, but I think he's a wireless guy."

Investors were less optimistic as Sprint shares lost 15 cents, or 1.1 percent, to close at $13.76 after hitting a 52-week low of $13.71 Tuesday.

Hesse will certainly have a full plate waiting for him at Sprint Nextel, which has fallen far behind rivals Verizon Wireless and AT&T Inc. in attracting and retaining customers.

The company has continued to struggle with lingering issues from Sprint's 2005 acquisition of Nextel Communications Inc., which was supposed to give the company enormous potential in the consumer and business markets but instead saddled it with incompatible networks, signal-killing technical glitches, a customer base filled with credit-compromised subscribers and a sometimes unfocused marketing effort.

On Tuesday, Hesse said his top issue will be finding ways to reduce the number of customers dropping coverage or jumping to other carriers.

But he also said a "top three" issue will be whether to continue a planned commercial rollout next year of the company's Xohm-branded WiMax service, which Forsee and others envisioned as Sprint Nextel's best hope of leapfrogging its competitors but has been criticized within the industry as too expensive and experimental.

"There's clearly an opportunity to be a first mover, and the longer we wait the less lead time there is in the market for a first mover with respect to WiMax," Hesse said. "I don't have any biases. But on that one, I hope we can make a decision sooner rather than later."

Hesse spent 23 years at AT&T, including a stint between 1997 and 2000 serving as the president and CEO of AT&T Wireless Services, which was then the nation's largest wireless operator. He and his staff are credited with developing One Rate, the industry's first attempt at a nationwide wireless calling plan.

He later jumped to wireless startup Terabeam Networks, which was sold in 2004.

Bank of America analyst David Barden said Forsee "checked a lot of boxes" among board members with his wireless experience, his familiarity with the company and the fact he comes from the outside, free of any Sprint or Nextel management biases.

But Barden said the market will take a "wait and see" approach with Hesse, given his lack of a management role in wireless for many years.

"Hesse brings new blood to the Sprint organization, and a recent positive track record of brand-building at Embarq, but there is no track record to draw upon with respect to how his vision for a new Sprint Nextel will come together," Barden wrote.

During Hesse's tenure at Embarq, the company slowed losses from customers switching from landline phones to wireless and Internet-based telephone services. It also ramped up the number of high-speed Internet service customers and began offering wireless service as part of its service bundles.

Tom Gerke, Embarq's general counsel, was appointed interim CEO Tuesday and said much of the company's plans for 2008 are already set and shouldn't suffer from Hesse's departure.

"I think we've got a lot of continuity in management, continuity in strategy, and the business plan's in place, so it's with a great degree of confidence that we approach the future," Gerke said.

Sprint agreed to a number of concessions in return for Hesse's switch, including no immediate wireless service price increases for Embarq and an agreement not to hire certain Embarq employees.

Embarq shares gained 53 cents to close at $48.19. They also hit a 52-week low earlier Tuesday, at $46.94.

Sprint's announcement comes three weeks after its board reportedly turned down an $5 billion investment proposal from South Korea's SK Telecom Co. and Providence Equity Partners that would have included the appointment of former Sprint Nextel Chairman Tim Donahue as CEO.

Donahue, a former CEO of Nextel Communications, left Sprint at the end of last year.