Sprint's Claure: A key early decision in turnaround was cutting off sub-prime customers

Sprint (NYSE: S) CEO Marcelo Claure said his top priority is to return the loss-making carrier back to profitability, something it hasn't consistently achieved since 2007, and he is embarking on a turnaround strategy to get the company there.

Marcelo Claure Sprint CEO

Claure

However, he said that one of the first changes he made when he took the helm in August 2014 was one that was done with some trepidation: to stop selling service to customers with sub-prime credit ratings.

In an extensive interview with The Wall Street Journal, Claure said that when he first arrived he was advised to not make major changes within the first 90 days, but that he "couldn't resist seeing broken things and immediately taking action." He said he spent the first few days with Sprint's engineers, marketing, sales and customer care teams to challenge them and force them to explain their decisions.

"I look back at our first major decision. I realized that we had way too many subprime customers. My first decision was common sense, to say we're going to stop selling phones to people who can't pay their bills," he said.

"The amount of pushback that I got, people were saying you're basically going to cut sales by 50%," Claire said. "I said, well we're going to offer attractive price plans. I woke up that morning very, very nervous. Could my first decision be so bad as to kill sales by 50%? Thank God the decision was right, so we actually increased sales. More important, we increased sales by more than 200% of prime customers."

Claure said in September that the company has added postpaid handset customers for four months straight through August. Given the launch of Apple's (NASDAQ: AAPL) new iPhones in mid-September, the carrier likely continued that streak through September and added postpaid phone customers for the third quarter. Sprint will report quarterly earnings on Nov. 3.

However, not all is rosy for Sprint, as the company burned through $2.2 billion in cash in the second quarter and Moody's Investors Service in September downgraded its credit ratings, saying that the carrier is not doing enough to right itself.

After a year on the job, Claure in August gave himself three to five years in total to turn around the company. He told the Journal that his "No. 1 goal is for Sprint to become a profitable company, and to finalize what I call an eternal turnaround."

"This is one of the most difficult turnarounds, probably, in the world: [I took over] a company that burned $5 billion in cash, lost $800 million and had $32 billion of debt," he added. "I've taken on the challenge because I find it hard to understand why a company with over $35 billion in revenue cannot turn a profit. A company that has more customers than the population of Canada, and a company that has one of the highest average revenue-per-user [figures] in the world. There are structural disadvantages that we're going to fix one by one, and we're going to turn around Sprint."

Claure, who founded wireless device distributor Brightstar (which is now majority-owned by Sprint parent SoftBank) and became a billionaire, said that as an entrepreneur he made decisions and people followed him because he said so. At Sprint, he said "you have to lead by example. You have to spend a lot more time explaining to people the 'why' behind your decisions."

"However, there are tremendous similarities. Everybody likes to win. I don't care if you work for a small plumbing company or the most successful company in the world," Claure noted. "There's a special flavor to winning."

Claure explained that when he came on board, he held a town hall with employees and said that Sprint would, in less than a year, turn things around and start adding phone customers, and that most people in the room would have thought he was "absolutely out of my mind because Sprint had been losing customers for four years. And now, we're going to have gone to many months of handset positive additions."

"The next goals for the organization are much, much bigger. It is basically to do things that Sprint has never done," Claure said. "Sprint has never had the best network in the U.S. Sprint hasn't turned positive free cash flow in many years. Sprint hasn't made real profit in many years. So now we have set those goals."

For more:
- see this WSJ article (sub. req.)

Related articles:
Sprint's Robbiati: We can cut $2B in operating expenses, $500M on equipment spending
Sprint to raise price of unlimited data plan from $60/month to $70/month starting Oct. 16
Sprint's Claure: We'd benefit from a merger with a cable MSO -- but no M&A is in the works
Sprint's credit ratings get downgraded by Moody's amid unease about its long-term turnaround prospects
Sprint's Claure: Network improvement, awards in Denver are a harbinger of things to come nationwide
Sprint's Claure gives himself 3-5 years for turnaround after 1 year on the job

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