With so much focus being on wireless much of the world seemingly has forgotten that Sprint (NYSE: S) has a profitable wireline business. The company recently set a plan in motion to change that attitude by launching a separate wireline division dedicated to its business customer base.
Leading this segment is 10-year company veteran Mike Fitz, who now serves as the VP and general manager of Sprint's Global Wireline Business Unit. Sean Buckley, senior editor of FierceTelecom, spoke with Fitz about the trends he's seeing in Sprint's wireline segment.
FierceTelecom: What drove Sprint to carve out the wireline segment as a separate unit, and how is it structured?
Mike Fitz: Frankly, this business needed focus and that was what drove us to pull it out. With so much focus on the wireless business at Sprint, we said: 'let's make sure that from an investment standpoint, from a product management standpoint, and from a sales standpoint this business gets the focus that it needs so it can thrive.' That was the driver behind it. We have always had a focus on customer first here at Sprint and I think that's why we had integrated sales, marketing and product teams with a single face to the customer and a single account team. While there are a lot of benefits to that, the downside is that when your wireless business is 90 percent of your revenue in a $32 billion company, the wireline piece was not getting the focus and investment it needed.
It encompasses all of the core functions, so I have sales, sales engineers, marketing, product development, corporate communications and HR. It's the first time in probably ten years we had that, and it's creating a lot of synergies for us. We now have sales reps that are focused every single day on the business. They have been on staff calls that are 100 percent focused on the wireline business. It's all about how can we grow our Ethernet business, how do we grow our managed services, and other value added services.
FierceTelecom: Does the new unit indicate Sprint sees greater value in the wireline business amidst rumors of a sale?
Fitz: It's nearly impossible to separate the wireline and wireless business because it's the same backbone. I don't know how you would do it and it's the core to running our wireless business, too. Wireless is my anchor tenant customer. It's very important that I serve that business and serve it well. There are selfish reasons to want to have a focus on wireline business that goes beyond our external customer business: it's to make sure I am investing in driving an efficiently run, cost effective core for the sake of wireless as well.
Right now, my focus is all about driving profitability and growing the top line. We're going to be doing that through moving our customers to more cost effective services. Much like the trend of moving away from TDM-based access services to Ethernet and other alternative services, that's what we're looking at. That could range from microwave to satellite to Ethernet over cable or Ethernet over Copper. All of these alternatives are in play for us as alternative means to get customers on more cost effective access. That is the single biggest driver that will drive profitability back into my business. At the same time I want to grow it with new services, including workplace as a service, which is an all-in-one, per-seat solution. That combined with a much more cost effective set of core network services is what we're banking on will help us grow this business.
FierceTelecom: Do you see this new unit as a way to increase wireline business revenues?
Fitz: It absolutely will, and we have already seen it. We've been operating this way for a few months, but it has taken us a while to carve out the team and get them focused. I have had some of my team members focused on this for a couple of months. April for us was our best month ever in the history of wireline in terms of selling new ports and circuits on our network. It has been in decline for a while, but in terms of new fiber-based Ethernet services it was our best month ever. We're confident of the indication of the focus on this business. It was also the best month of selling our managed services.
FierceTelecom: You mentioned Ethernet. What is your Ethernet strategy and are there plans to expand Sprint's Ethernet presence?
Fitz: We had fiber External-Network to Network Interconnection agreements (E-NNIs) for some time with all of the big players and we continue to expand those every day. We're expanding hundreds of NNIs around the country over the course of the next six months, which will expand our fiber Ethernet footprint. We have as good a fiber Ethernet footprint as anyone does because we're partnered with all of the big fiber providers: all of the LECs, all of the CLECs, which are the same guys everyone else is partnered with. We're adding more NNIs, which gives us greater reach with the partners we have.
In addition, we're going to be launching Ethernet over Copper and Ethernet over DOCSIS options this summer. It's the same Ethernet access, but instead of using fiber it uses copper or the cable plant that Comcast (NASDAQ: CMCSA), Cox and others use, which will further expand our options for Ethernet access. We're confident that once we launch those alternatives we will have 95-plus percent of the country blanketed with Ethernet access.
FierceTelecom: Besides renting other carriers' facilities, are you building out your own fiber to business locations?
Fitz: It's mainly the latter. Obviously, we own a lot of our own fiber for backhaul. On occasion for big customer deals, we have done fiber to the premises ourselves. If the economics make sense we do it and we have plenty of customers that have, maybe, GigE connections into a data center or 10 GigE and the economics are such that it makes sense to build it. But for the majority of connections, the economics aren't there. If I have a circuit into a mall and Verizon (NYSE: VZ) and other competitors do and those customers want 10 Mbps of service, it does not make sense to trench fiber in there five times for the five different carriers. You do it once and we all share it and buy from each other and that's 98 percent of the market. We certainly do it when it makes sense and if it's a big enough opportunity.
FierceTelecom: How does Sprint stand out from the competition? Is it the global reach of the MPLS network, the wireless connection, or something else?
Fitz: I think for us it's the value added services and the support we wrap around the services. I am pretty confident -- and I know the industry metrics aren't tracked that well in the wireline segment like they are in wireless with things like churn -- but we have incredibly low churn. On the IP and MPLS side, we can talk about our revenue decline, but that's really coming from one area of legacy services. If you look at TDM voice, which is off the old Nortel DMS switches and the old TDM private lines, that's where 100 percent of the decline is coming from. In consumer long distance, which we are shutting down, the decline is coming there.
Our core IP, MPLS, Ethernet business and our value-added service business is actually growing. It is growing because we have incredibly low churn because we have very loyal customers that value the service and the support we get. Our Compass tool, which is our portal into the network, is hands down the best in the industry. Our value proposition is taking a rock solid network and providing the best service and support on that network and the best tools for customers to see and manage that network. It is a competitive business from a price perspective, but that's why we have done well in that core network business. Then we layer on top of that our value added services like managed services and work place as a service.
Our Unified Communications services with Skype for business and our Cisco HDS business. When we wrap the core foundation with all those value added services that's where our customers tell us we have tremendous value and that's why we can compete going forward. What I need to shore this business up is if I can drive even more profitability into the core by getting out of this legacy TDM infrastructure that's going to drive additional profitability in my business and provide me a springboard for even more growth.
FierceTelecom: Besides large enterprises, Sprint has a strong presence in the small to medium business (SMB) market. How important is the SMB opportunity to the wireline unit?
Fitz: Small to medium businesses have been a strong hold for us for some time. I have a sales team that's focused on not just the big guys, but also calling into small to medium businesses, a segment many of competitors have moved away from. Some of the big guys in this industry are serving that segment through indirect channels. I still have a direct channel that is calling on small to medium businesses. I also have a global sales team because we have a network all around the world with presence in 185 countries. I have network assets all over the world and so we create significant value for our U.S.-based customers that have global assets that we can sell from our global network.
FierceTelecom: Let's switch gears to talk about the regulatory climate. Do you see the FCC's special access proposals potentially benefiting Sprint's wireline business?
Fitz: We certainly support it. This is what we have been calling on for a long time. We're one of the few in the industry that actually don't own those access facilities so we're dependent on using others. It's challenging sometimes with some of the rates we get, so we support the FCC looking into it and making sure it's fair.