Sprint Spent Heavily for Advice Later Brushed Aside

Sprint Corp. recently paid a small team of consultants at least $25 million for advice that largely was never used, according to people familiar with the matter.

Shortly after Marcelo Claure became chief executive of Sprint last year, he hired a group of about a dozen advisers, led by wireless telecom veteran Dennis "Sol" Trujillo, to help him in the new job and design a plan to improve network quality at the nation's No. 4 wireless company by subscribers.

For roughly five months of work, the consultants received between $25 million to $30 million, according to the people familiar with the matter. The deal was originally set to pay around $50 million for a year's work, but the arrangement ended after Sprint Chairman Masayoshi Son disagreed with many of Mr. Trujillo's recommendations, the people said.

The sum raised eyebrows among Sprint managers because it was significantly more than what outside consultants in the past were paid, according to these people, and because the carrier has been undergoing a major cost-cutting effort. The contract was negotiated by Mr. Claure personally and without the input of some executives typically involved in reviewing such deals, these people said.

A Sprint spokesman said Mr. Trujillo and his team's review of the company spanned all of its operations and that some of the advice was put to use. The spokesman also said the size of the contract wasn't out of the ordinary.

Mr. Claure said in a recent interview that he brought in the advisers because he wanted to ensure the company was on the right path as it upgraded its wireless network.

"I only get one shot at building this network," he said. "I want to make sure we really got it right."

Others close to the situation say that even though Mr. Trujillo's network advice wasn't used, his presence helped force tough decisions on network planning that may have otherwise lingered. "It accelerated a discussion on topics that Marcelo may not have gotten to for a while," said one of the people familiar with the matter.

The situation provides a window into the early days of Mr. Claure's first year and a half at Sprint, which has been marked by a stream of executive departures and strategic shifts. Since Mr. Claure took over, seven senior executives have left. Sprint's stock has lost about a third of its value during that time, although the carrier has recently stemmed subscriber losses and its network speeds and reliability are starting to improve, network analysts say.

Sprint has been borrowing to sustain its cash use, and debt-rating firm Moody's Investors Service lowered its junk credit rating in September. The company lost $585 million in its latest quarter and hasn't been profitable on an annual basis since 2006.

Mr. Claure's mandate at Sprint has been to stop losing money and start adding subscribers. He took over in August 2014, just as Mr. Son's SoftBank Group Corp. and Sprint were abandoning plans to acquire rival T-Mobile US Inc. Previously, Mr. Claure ran Brightstar Corp., a company he founded in 1997 and built into one of the world's largest phone-distribution businesses.

Mr. Trujillo, 64 years old, the lead consultant, has had a long career in telecom. He served as CEO of former regional telephone operator U.S. West, French telecom firm Orange SA and Australia's Telstra Corp., both large wireless network operators.

He also has ties to Mr. Claure, 45, who has described Mr. Trujillo as an important mentor. The two met over a decade ago when Mr. Claure was still building up his mobile-phone distribution business.

In 2005, just after Mr. Trujillo became CEO of Telstra, he signed a deal with Brightstar to manage Telstra's phone-distribution operations. Rival vendors accused Telstra of failing to go through an open bidding process. Both companies said their dealings were proper. Mr. Trujillo's successor at Telstra ended the contract in 2010.

In the fall of 2014, not long after taking the reins at Sprint, Mr. Claure hired Mr. Trujillo and his team of advisers, which included senior executives who had worked for Mr. Trujillo. The consulting agreement was divisive among Sprint's executives. Mr. Trujillo's team was given keycards for their own area on the Sprint campus in Overland Park, Kan., that other employees weren't allowed to access, one of the people said.

A top network engineer at SoftBank who now works as Sprint's Technical Chief Operating Officer, Junichi Miyakawa, refused to meet with Mr. Trujillo, the people said. Mr. Miyakawa disagreed with Mr. Trujillo's ideas, one of which was to begin shutting down a technology that the company had just spent more than three years and billions of dollars upgrading, these people said.

Messers. Miyakawa and Son didn't respond to requests for comment. Mr. Trujillo declined to comment this week.

Mr. Son didn't agree with Mr. Trujillo's ideas either, according to people familiar with the matter. After meeting with Mr. Trujillo earlier this year to hear his plans, Mr. Son began working to come up with an alternative that employs unused airways to boost network speed and quality.

Within weeks, Mr. Trujillo and his team left Sprint's campus and the consulting deal ended in the spring. The Sprint spokesman said the consulting deal wasn't ended early because of disagreements. Mr. Trujillo and his team left because they had finished their work, he said, and there were other reasons Mr. Son was getting more involved with Sprint.

People close to the situation say even though much of Mr. Trujillo's advice wasn't put to use, it helped Mr. Claure get hands-on advice on running a wireless operator. It also catalyzed Mr. Son's decision to re-engage with Sprint, they added. More recently, Mr. Son helped create an off-balance sheet entity to buy Sprint's handset leases, which mitigates one of the carrier's biggest annual expenses.

"Paying all that money to get [Mr. Son] off the sidelines and back into the game," one of the people said, "it was probably a cheap proposition."

Write to Ryan Knutson at [e-mail]

(END) Dow Jones Newswires

December 22, 2015 20:25 ET (01:25 GMT)

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