Sprint's Hesse: Regulators will be open to more industry consolidation

Sprint Nextel (NYSE:S) CEO Dan Hesse said he thinks regulators at the Department of Justice and FCC would be open to wireless industry consolidation if the resulting combination created more competition for Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T), the nation's two largest carriers. 

Sprint Dan Hesse


"I actually believe that Washington would be receptive to consolidation to provide more balance to the big two," he said, speaking Wednesday at the 40th Annual J.P. Morgan Global Technology, Media and Telecom Conference. While Hesse said it depends on who the individual regulators are deciding proposed transactions, he noted that he was very close to the process last year as regulators ultimately blocked AT&T's proposed $39 billion deal for T-Mobile USA, which Sprint vigorously opposed.

"I honestly believe that both the Department of Justice and the FCC have a very open mind with respect to any industry consolidation and want to see a competitive industry," Hesse said. He said in an ideal world, Sprint would not have to think about potential M&A activity until after it has largely completed its Network Vision network modernization plan by the end of 2013, but he said that may not happen. He said right now is not a perfect time for Sprint to consider a merger. "Clearly, the time is not ideal based upon where our shares are currently trading," he said.

Last week at the CTIA Wireless 2012 conference in New Orleans, FCC Chairman Julius Genachowksi defended the agency's decision to block the deal. AT&T fired back that while the FCC was within its rights to withhold approval from the transaction, "it is incorrect when it denies the impact such decisions have on the price of wireless services."

When asked about Verizon's bid to acquire AWS spectrum from a group of cable companies and Sprint's decision to join a group with T-Mobile and the Rural Cellular Association, dubbed the Alliance for Broadband Competition, which opposes the deal, Hesse said it would be going a little too far to say that Sprint had joined forces with any other companies. However, he said the FCC is cognizant of the need to fight against too much spectrum consolidation.

In a wide-ranging conversation, Hesse, who was re-elected Tuesday to Sprint's board, also touched on smartphone data pricing and subsidies as well as Network Vision, which he said remains on track. Hesse noted that improving customer satisfaction metrics allowed Sprint to keep its unlimited smartphone data plans but raise the price last year by $10 per month to a base amount of $80.

Hesse said Sprint always has the option of raising prices again to keep unlimited, but repeated his mantra that simplicity and unlimited plans serve customers well. He also said that Sprint has not seen a change in customer's data usage patterns, even with the addition of Apple's (NASDAQ:AAPL) iPhone, as customers have switched from other carriers to take advantage of Sprint's pricing. "We have not seen a change in usage pattern of the customers that have moved to Sprint since our competitors have gotten away from unlimited," he said. "We'll continue to watch that pretty closely."

And of course, Hesse could not resist trumpeting the fact that Sprint topped the charts in terms of customer satisfaction, according to a new report from the American Customer Satisfaction Index. Sprint's score of 71 nudged it just ahead of Verizon Wireless (NYSE:VZ), which scored a 70 on a 100-point scale. Both carriers recorded scores of 72 in last year's ACSI survey.

Interestingly, Hesse provided several metrics to back up his assertion that "good customer service costs a lot less" for the overall business. He said customer care costs used to cost Sprint $3.7 billion a year and now run around $2 billion a year. By simplifying Sprint's rate structure since he took over as CEO in late 2007, he said Sprint has reduced its total billing costs by one-third. Those improvements have seen the number of customers on the "Sprint" (i.e. non-Nextel) brand jump from 26 million to 51 million in last two years, he said.

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