February 27 2008: 4:06 PM EST
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Sprint chief tries to halt customer exodus

Dan Hesse wants to make big changes at the struggling wireless firm, but his customers keep walking away.

Sprint CEO Dan Hesse faces investors on Thursday for the first time.
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(Fortune) -- Sprint chief Dan Hesse will face investors for the first time Thursday morning. His biggest challenge? To stop people from gawking at all the problems he's inherited and get them to focus on the fixes he's making.

Unfortunately for him, the big story coming out of Sprint Nextel's fourth quarter earnings is more of the same: mobile phone customers continue to leave in droves. The No. 3 wireless shop is expected to report that more than a half million users have cancelled their service as of the end of the year. Worse, say analysts who've been watching the monthly defection rate, the company is on track to lose more than a million subscribers this quarter ending March 31.

Hesse took over last year after former CEO Gary Forsee was voted out, and in his short time at the top he has shaken up management, ordered 4,000 job cuts, reconsolidated the company's headquarters and has contemplated a spinoff of the WiMax business. But Hesse appears powerless in the face of an alarmingly accelerating erosion of the company core wireless customer base. Sprint lost 337,000 subscribers in the third quarter, then double that in the fourth quarter. And now, though the company isn't likely to disclose it, it's on track to double that pace again.

The news comes just a day after Qwest (Q, Fortune 500) said it was looking to exit its wireless partnership with Sprint and join forces with Verizon (VZ, Fortune 500). That move in itself would take more than 800,000 users off Sprint's hands.

Why are so many subscribers fleeing Sprint (S, Fortune 500)? The difficulties can be traced at least back to the ill-managed 2005 merger with Nextel. Nextel's customers were heavy users of push-to-talk systems, and when Sprint neglected to maintain and upgrade networks, they found the system unreliable and have left in huge numbers. Sprint also bungled relations with the federal government that cost it access to a $20 billion contract opportunity. Industry observers and insiders say Sprint is in critical condition now and Hesse has to take some dramatic action to turn things around.

Some analysts and industry executives say Hesse has no choice but to break up the company. Sprint could carve out three businesses - WiMax, business services, and its wireline operation - and keep its wireless unit, say industry observers. Hesse is conducting a sweeping strategic review of Sprint and its options, but he's not expected to present his conclusions until April.

But some analysts see the need for Hesse to start prioritizing now. "Long term, the WiMax investment could be interesting," says Bear Stearns analyst Phil Cusick. "But for a company with this many other problems it's been a distraction, and that's something the company can't afford right now."  To top of page