July 18, 2017 9:02 am JST

What's next for Masayoshi Son now that Sprint is on the rebound?

How karaoke, mahjong and perseverance won over US engineers

NAOTAKA OWADA, editor-in-chief of Nikkei Computer

SoftBank Group Chairman and CEO Masayoshi Son speaks at an earnings briefing on May 10.

TOKYO -- U.S. mobile carrier Sprint seems to have vanquished its losing ways. The unit of Japan's SoftBank Group used to have the worst network quality among the U.S.'s four leading operators. Now it is on an earnings recovery.

Sprint on May 3 announced that its operating profit for fiscal 2016 grew under U.S. accounting standards. SoftBank Group Chairman and CEO Masayoshi Son, who pledged a revival, can now exhale.

In fiscal 2015, the struggling service provider posted its first operating profit in nine years as a plan calling for 200 billion yen ($1.76 billion) a year in cost cuts began bearing fruit.

Son himself says restructuring Sprint has been the most difficult among his recent projects. He bought Sprint for $21.6 billion in 2013 with the intention of merging it with rival T-Mobile US. The merged entity would then take on the U.S.'s top two carriers -- Verizon Communications and AT&T. But his ambition was dashed when U.S. trustbusters blocked the merger.

Exiled to Kansas

While the proposed merger went nowhere, Sprint's business plunged. The carrier had a network so unreliable it chased subscribers elsewhere. Its competitors surged. "I regretted having bought Sprint," Son said. "I lost confidence and grew tired of the world."

Son had given up on turning around Sprint and thought about selling the company. But "no one wanted to buy" it, he said.

So he rolled up his sleeves.

Son appointed Marcelo Claure as Sprint's chief executive officer in 2014. The founder of mobile phone wholesaler Brightstar began cutting costs and jobs. But Claure is not a technology guy and asked Son to send him the best person he could find to improve Sprint's network quality. One man came to Son's mind.

So one Monday in the summer of 2014 while Son was breakfasting with SoftBank executives, he singled out Executive Vice President Junichi Miyakawa. "Go to Kansas the day after tomorrow," he told the puzzled executive.

Sprint is headquartered in the Midwestern U.S. state.

In an uproar

Miyakawa resisted. He cannot speak English, he protested. But to no avail. After arriving in the conservative state, Miyakawa found a network that was worse than he had imagined. He pointed out all the out-of-coverage areas across the country to Sprint's engineers, who shrugged off the blind spots. In a country with a land area more than 20 times that of Japan, the engineers apparently thought that of course there would be gaps. The Japanese way, they told him, wouldn't work.

They said "yes" when Miyakawa ordered them to improve the network, then said "no" when asked if they had actually followed through. They became defiant, arguing that his instructions made no sense. The engineers refused to tell him about technological challenges. They were wary of a Japanese outsider.

The stress led to Miyakawa losing more than 10kg during his first year in Kansas.

Miyakawa began cutting off funds for infrastructure improvement projects in favor of designing a new network from scratch. He blocked orders for equipment meant to bolster existing installations. He occasionally telephoned Son and asked him to suspend work.

Sprint's headquarters were in an uproar. Executives in charge of technology argued the board of directors had approved the spending and that Miyakawa had no authority to overturn those decisions. For executives at U.S. companies, board decisions are absolute, and disobedience can cost them their jobs.

Karaoke and mah-jongg

So Miyakawa asked Son to convene an ad hoc board meeting.

Things eventually began to change, though engineers still refused to share details with Miyakawa. The outsider got even, though, by bringing in more outsiders -- trusted engineers from Japan -- and went about renovating Sprint's wireless network.

He made use of big data analysis tools he had acquired in Japan. He saw that income widely varies in the U.S. depending on where people live. In some areas, large numbers of subscribers could not keep up with their bills. Team Miyakawa then prioritized areas where most subscribers were paying their invoices, thinking these better-off regions could help Sprint's revenue grow.

Once his reforms started to produce results, engineers' attitudes changed. Guenther Ottendorfer -- the chief operating officer of technology who was headhunted for his experience at telcos in and outside the U.S. -- says he learned a lot from Miyakawa. Ottendorfer says the knowledge was especially useful when improving connectivity in crowded metropolises like New York and Chicago.

Engineers began hanging out at Miyakawa's home, singing karaoke over a Nintendo Wii and playing mah-jongg.

The art of simplifying

As for Claure's cost cuts, free snacks and beverages disappeared from the Kansas office. Cleaning crews were laid off and employees were asked to empty their trashcans before going home.

The 1,500-member marketing section was downsized to 500 by 2016. The public relations section shrank from 100 employees to 20. The personnel cuts also covered call centers and technology sections.

Claure also changed the company's way of doing business so Sprint could manage with a smaller workforce.

Smartphone fee plans offer a good example. Sprint used to have more than 15,000 combinations. No surprise, then, that call centers would be inundated with inquiries from confused customers.

Now Sprint has fewer than 10 main fee plans. The resultant drop in the number of phone inquiries has enabled the company to downsize its call centers without much strain. Related costs also fell. Explaining fee plans to customers has become easier, and now salespeople spend half the time attending to customers than they used to. Customer waiting times went down, and the quality of customer service improved -- all without hiring more staff.

50% off

These improvement armed Claure to go on a sales offensive. He launched it last year.

The country was divided into 18 regions, with a president appointed to each. The presidents oversaw analyses of their regional customer bases. They tailored shops to suit local tastes and drew up sales strategies.

By introducing a sophisticated customer service system, Claure wanted the regions to compete with one another and employees to gain motivation. Healthy rivalries, he thought, would improve sales techniques companywide.

As of the end of 2015, Sprint's network quality was better than that of its rivals in many areas. Its prices were competitive. But the company did not get as many customers as it had hoped. T-Mobile US, meanwhile, saw its contracts grow despite slower data transmission speeds.

Market research showed that potential customers were unaware of Sprint's improved connectivity. So the carrier began even more aggressive sales campaigns -- 50% discounts and an exclusive deal for iPhone users.

More options

Son appointed himself Sprint's chief network officer and began holding teleconferences with executives in the U.S. The almost daily meetings would begin at 10 p.m. in Japan and often devolve into shouting matches.

Son would stress that he works for Sprint "under the command of Marcelo." He held the discussions to support Claure on technical matters and to back up Miyakawa. He wanted to make sure that Claure was in charge of Sprint's turnaround.

Sprint's earnings are now drawing market attention, and the company's future has sparked chatter. Will SoftBank sell the carrier? Might it acquire one of its rivals?

When U.S. trustbusters nixed the deal with T-Mobile US, Barack Obama was president. Now Donald Trump is, and with his administration all for stampeding over regulations, that T-Mobile deal could make another go at approval. But there are also reports that SoftBank might sell Sprint's management rights.

At any rate, the SoftBank Group unit today has more options than it did a couple years ago.

(Originally published in Nikkei Computer May 25 issue, 2017)

SoftBank Group Corp.

Japan

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