Flood of Red Ink Subsides at Sprint : Smaller Quarterly Loss Suggests Worst May Be Over for Firm
After stumbling badly out of the starting blocks, US Sprint finally seems to be hitting its stride.
Sprint, the nation’s third-largest long-distance telephone firm, managed to survive the near-disaster that followed its creation through the merger of two rival companies a little more than two years ago. It has struggled through complicated billing problems, monumental losses totaling $1.8 billion and the quick departure of two presidents.
But in the third quarter of this year, the company’s loss narrowed dramatically to a relatively manageable $19 million. Now analysts say they see a future written in black ink as Sprint moves ahead under William T. Esrey, who was named Sprint’s third president two months ago.
Ed Greenberg, an analyst with the Morgan Stanley & Co. investment firm, maintains that Sprint is already operating profitably, adding: “The question is how profitable they will become.”
Less sanguine is Steve A. Sazegari, an analyst with Dataquest in San Jose. “The jury is still out as far as when they will come out of the red,” he insisted. “Some believe that it will be by the middle of next year. I would say it will take into the 1990s.”
Started With AT&T;
In either case, the company apparently will be led for the foreseeable future by Esrey, at age 48 a trim, youthful-looking executive who prefers working in shirt sleeves. (“I’m a coats-off kind of person,” he told a photographer who asked him to don his suit jacket.)
Esrey, who also is president of Kansas City-based United Telecommunications, took the helm at Sprint after United Telecom agreed to acquire controlling interest in the long-distance firm from its 50-50 partner, GTE Corp. At the time, the appointment was portrayed as temporary, pending the naming of a permanent chief executive. Now Esrey hedges that a bit.
“We’re really rethinking that right now,” he said.
Esrey holds an undergraduate degree in economics from Ohio’s Denison University and an MBA from Harvard. He began his career with AT&T;, then spent half a dozen years as an investment banker before joining United Telecom eight years ago as executive vice president for planning. He later served as chief financial officer before becoming president in 1982.
Even though United Telecom’s purchase of an 80.1% stake in Sprint won’t close until Jan. 3, Esrey assumed full management responsibility in August after the early retirement of United Telecom Vice Chairman Robert H. Snedaker Jr. Some outside observers attributed the departure to personality differences between Snedaker, a veteran of the regulated telephone industry, and the more entrepreneurial Esrey.
Esrey, however, credits Snedaker with correcting the billing system problems that were the big Sprint story of 1987. The glitches, which stemmed from the swift merger of disparate computer programs, triggered the sudden resignation of Sprint’s founding president, Charles M. Skibo, and then gave Snedaker and Esrey headaches.
“We basically screwed that up ourselves, internally,” Esrey acknowledged.
The result was that many customers were not charged for some of their calls while others were billed for calls they never made, driving away business and producing the $350-million pretax charge against earnings that was Skibo’s coup de grace .
The problems have now been resolved, however. The Federal Communications Commission, which once threatened to penalize Sprint for substandard performance, declared this summer that the billing matter was “closed.”
As further evidence of the company’s progress, Esrey pointed to Sprint’s recent landing of some major telecommunications customers. General Electric, for example, this month signed a three-year, multimillion-dollar service agreement, joining such other major new accounts as Sony, SmithKline Beckman, Nynex (parent of the former Bell System phone companies serving New York and New England), Bankers Trust and the state of Illinois.
‘Right Direction’
Sprint now claims 8% of what Esrey estimated to be a $53-billion long-distance telephone market, behind MCI’s 11% share and American Telephone & Telegraph’s 70%.
Meanwhile, Sprint has nearly finished building the world’s most extensive network of high-capacity, ultra-quiet optical fiber transmission lines. The new network already is carrying Sprint’s domestic calls over its 20,000 miles of hair-thin flexible glass filaments, through which lasers propel both voice and data messages in digital form at the speed of light.
Sprint’s technological lead may not last long, however. AT&T; responded last month by announcing that it will complete conversion of its own network to fiber-optic technology in 1990 instead of 1993. And the telecommunications giant also added 1,300 headquarters workers to its sales force to service major accounts.
Still, with a modern, more efficient telephone network now in place, Sprint’s prospects for 1989 appear far rosier than might have been imagined a year ago. After it makes a final accounting adjustment this quarter to reflect the less-than-anticipated salvage value of the old equipment, Esrey said, the company will enter the year with “a totally clean balance sheet.”
The new year also will see, he added, rapid revenue growth from new telecommunications services--notably the fast-growing and fatter-profit areas of toll-free calling, operator services and international calling over fiber-optic transoceanic cables.
“The trend’s in the right direction,” Esrey said, “and it’s going to continue in the right direction.”
SPRINT AT A GLANCE US Sprint’s Roots Southern Pacific Transportation Co. built a microwave network along its railroad right of way and offered long-distance telephone service over a new SP Sprint subsidiary, which it sold to GTE Corp. in 1983, when it became GTE Sprint. Meanwhile, United Telecommunications, Kansas City, Mo., acquired a regional carrier in Texas in 1981, renaming it US Telecom. In July, 1986, the two carriers’ parents created a merged joint venture, naming the hybrid US Sprint, Kansas City, Mo.
United Telecommunications Main businesses: Provides local telephone service in mostly rural areas of 19 states, owns 50% stake in US Sprint with GTE Corp., which will increase to 80.1% Jan. 3, 1989. 1987 revenue: $2.98 billion. 1986 revenue: 3.06 billion. 1987 net loss: $51.5 million (includes $331.9 million as UT’s share of US Sprint’s operating loss). 1986 profit: $180.6 million. Employees: 23,325. US Sprint 1987 revenue: $2.59 billion. Employees: 13,000
