Adam Bender

Sprint Nextel’s hiring Dan Hesse as CEO is a “positive step,” but what the ex-Embarq CEO means for Sprint strategy is unclear, Bank of America said Tuesday. “Hesse brings new blood to the Sprint organization, and a recent positive track record of brand-building at Embarq, but there is no track record to draw upon with respect to how his vision for a new Sprint Nextel will come together,” the bank said. Hesse must act fast. “As a relative outsider, the first test for Hesse will be to quickly assimilate the state of Sprint and what steps are necessary to reinvigorate the business,” it said. “The longer Sprint’s current course deviates from its ultimate course, the more time-consuming and expensive the fixes become.” Bank of America expects Hesse to hold an investor meeting in mid-March to discuss Sprint’s 2008 and 2009 game plan, it said. Hesse is no stranger to Sprint or wireless. “For those investors seeking external, outside- the-industry candidates, Hesse is as close to an insider as they come,” said Current Analysis’ William Ho. In 2005, ex- Sprint CEO Gary Forsee hired Hesse to run Sprint’s wireline business, later spun off and renamed Embarq. From 1997 to 2000, Hesse had led the old AT&T Wireless as president and CEO. His industry experience is valuable, Ho said. “Sprint is bleeding and needs someone who knows the business now without any learning curve.” Hesse probably won’t “make the dynamic changes” needed at Sprint, Pali Capital said. “While Hesse might communicate a plan that portends to improve the operational results and culture at the company, we fear that it will be the typical corporate 10-point plan that lacks the radical change and immediate action necessary to set a new course for Sprint.”

Covad will challenge an arbitration order requiring it to pay STS Telecom $7.3 million in damages and legal fees, said Thad Stevens, Covad’s government and external affairs vice president. The American Arbitration Association signed the order Dec. 5 after determining that Covad “fraudulently induced” STS to sign a broadband Internet access agreement in 2005. Covad misrepresented and concealed material facts when officials told STS that Covad’s network was optimized for VoIP and being used for it, and that STS could “successfully provide VoIP services over the same network,” Judge Chris Cottle wrote in the AAA order. “These representations were false and the evidence demonstrates Covad’s sales and engineering personnel knew they were false.” The AAA’s decision was “not supported by facts or applicable law,” and a challenge will come in the “near future,” Covad’s Stevens said. Covad is looking at district courts and other avenues of appeal, he said: “STS is engaging in a defamatory campaign to force a settlement and gain an unfair competitive advantage.” Covad shouldn’t “disparage” the AAA decision, since the parties agreed on the judge, and the court based its decision on California law, said Keith Kramer, STS legal & regulatory affairs senior vice president. STS isn’t trying to defame Covad, and it doesn’t want to settle, Kramer said. STS won the award, Kramer said: “Why would I want a settlement?” STS “did everything by the book,” and it was the U.S. District Court for the Southern District of Florida that ordered the companies to the AAA proceeding, he said. The Florida court must still confirm and enforce the AAA ruling, he said, saying STS made filings to that end last Wednesday.

Collaboration -- not IPTV -- is central to Qwest’s strategy, CEO Ed Mueller said in a Monday call updating investors on his strategic company review. Mueller’s review found no major fault with the previous management. “I see a solid foundation and vision,” he said. But he will “focus day to day on operations and seek opportunities to improve customer choice and drive revenue.”

Nortel countersued Vonage in Delaware, alleging willful infringement of 12 VoIP patents and seeking an injunction, damages and legal costs. Nortel also asked the U.S. District Court for Delaware to deny a Vonage request to invalidate three Nortel patents. A hearing on claim construction will take place Nov. 14, 2008; a 10-day jury trial will start May 4, 2009. “This litigation is ongoing and both parties have filed and will continue to file papers in support of the case going forward,” a Vonage spokesman said. Vonage resolved conflicts with several parties, most recently dismissing charges against Sprint Nextel after settling with the carrier in a separate dispute (CD Nov 20 p9).

Leap Wireless would consider joining forces with another company, CEO Doug Hutcheson said as the carrier released Q3 results last week. Leap “has strong independent growth prospects, but we have also taken significant steps to explore appropriate collaborative alternatives to further building the business,” Hutcheson said. MetroPCS has been the favorite to buy Leap since last September, when it proposed to the carrier (CD Sept 5 p2). A post-700 MHz auction MetroPCS deal still seems likeliest, but cable and satellite companies looking to enter wireless could be interested, Stanford Group analyst Michael Nelson said. Buying or joint venturing with Leap could cost less than buying spectrum, he said. AT&T also could make a move on Leap, Egan-Jones said in a note. “It is probably cheaper for AT&T to purchase Leap than to expand its own systems,” the analyst firm said. Nelson disagreed, citing high integration costs. An AT&T deal would make “no sense at all” because GSM carrier AT&T would need to convert Leap CDMA-based network, he said. Leap also updated investors on 700 MHz auction plans and its earnings results restatement on the period from 2004 through Q2 2007. Leap “filed to participate in Auction 73,” Hutcheson said. “The company has been a disciplined bidder in past auctions resulting in one of the lowest average price per MHz POP paid, and the company expects to be thoughtful in managing its spectrum opportunities and liquidity.” Earnings revisions shrank service revenue $8 million and operating income $23 million over the restated periods, he said. Leap expects related regulatory filings to be done by Dec. 31, he said. The restatement slowed release of Leap Q3 results; other U.S. carriers reported earnings in late October and early November. In Q3, Leap net losses grew significantly, rising $42.5 million year-over year to $43.3 million. Leap blamed higher interest and taxes from accounting method revisions. Gross customer adds, up 11 percent year-over-year, were “less than we anticipated,” said Hutcheson, citing “changes in customer buying patterns during the third quarter.” In Q4 Leap should hit expected customer adds, driven by “attractive post-Thanksgiving results,” he said.

Nokia GSM phones don’t infringe Qualcomm patents, a International Trade Commission judge said in an initial determination. The ruling isn’t a final decision. That will come in late April. But the commission historically doesn’t “disturb” it, former ITC lawyer Lyle Vander Schaaf said in an interview.

Towerstream can win 700 MHz spectrum despite its size, CEO Jeff Thompson said Thursday during a panel at the Thomas Weisel Partners conference in San Francisco. The wireless broadband firm said Wednesday it filed an auction application (CD Dec 13 p9). Thompson and officials from FiberTower and Airspan Networks also discussed WiMAX’s advantages over Long Term Evolution (LTE), a rival technology embraced by AT&T and Verizon Wireless.

Leap Wireless subsidiary Cricket agreed to pay $30 million for Hargray Communication’s wireless business, it said Wednesday. Cricket will acquire Hargray Wireless, including its 15 MHz spectrum license, wireless network and “the majority” of its customer base. Hargray’s wireline and wireless bundled customers will remain with Hargray but receive Cricket service under a wholesale arrangement to be made once the parties close the acquisition, Cricket said. Cricket will bring service to Savannah, Ga., and Hilton Head, S.C. The market additions “complement our newly launched Charleston, S.C., market as well as our existing Carolinas cluster,” said Cricket CEO Doug Hutcheson. Cricket expects the deal to close the first half of 2008, subject to FCC and other approvals, it said. The acquisition furthers Leap’s overall “cluster strategy,” said Current Analysis’ William Ho. “The most recent example can be seen in the North Carolina coverage area where Leap linked… Charlotte, Greensboro and Raleigh, thereby minimizing roaming,” he said. The Hargray integration should “play out similarly, as Savannah and Hilton Head are all coastal and adjacent.” Network integration should be easy since Leap and Hargray are both CDMA carriers, he added.

Vonage filed Monday a counterclaim against AT&T in the companies’ intellectual property case, according to the docket in the U.S. District Court for Western Wisconsin. The VoIP company also filed a motion to transfer the case to the U.S. District Court for New Jersey. But the documents weren’t available right away Wednesday. AT&T sued Vonage alleging infringement of a VoIP patent in October (CD Oct 23 p3). But last month, Vonage said the parties were nearing a $39 million settlement (CD Nov 9 p6). If the AT&T-Vonage settlement is final, the counterclaim and transfer motion could be “residue from pre-existing legislation” that is “somehow appearing late and won’t have an effect at this point,” said Stifel Nicolaus analyst Rebecca Arbogast. But Vonage’s actions could also suggest the settlement isn’t final, in which case the filings are “standard operating procedure” and represent a “very reasonable next step,” she said. Spokesmen for Vonage and AT&T declined to comment.

A Protus news release claiming victory in a patent suit brought by J2 Global Communications’ Catch Curve is “misleading” and contains “incorrect” statements, J2 General Counsel Jeffrey Adelman said in an interview Wednesday. On Nov. 13, the U.S. District Court for the Central District of California dismissed the case “with prejudice,” blocking Catch Curve from reasserting patents against Protus. In Protus’ statement Wednesday, the Canadian Internet fax company said the court threw out the case after holding in a May Markman hearing that the Catch Curve patents didn’t apply to Protus’ MyFax and Virtual Fax services. But that’s not how it happened, Adelman said. “Protus did not ‘win’ anything and the court did not rule on anything that resulted in the ultimate dismissal,” he said. Protus’ account of the Markman hearing is “incorrect,” the general counsel said. “Instead, after years of litigation, Protus finally disclosed that certain of its operations were based outside of the United States. Based on that… disclosure and given the nature of the particular patent claims at issue in the U.S. Catch Curve case in light of limitations of U.S. patent law, the case was voluntarily dismissed.” That result “does not change anything either with regard to J2’s or Catch Curve’s position with respect to Protus or with respect to the ongoing Catch Curve licensing program,” Adelman said. Asked for comment, Protus stood by its news release. “We maintain that the Markman hearing results were completely in our favor and these patents do not apply to the MyFax services. The fact that the case was dismissed was a clear win for Protus,” a spokeswoman said. Protus wouldn’t say why it issued the release a month after the court order. “There was no time disclosure requirement attached to the release,” the spokeswoman said. J2 and Catch Curve have several other lawsuits against Protus in the U.S. and Canada. In Canada, Catch Curve has a patent suit covering “the sales that were also the subject of the U.S. case,” Adelman said. And J2 has suits “on a number of different patents against Protus in both Canadian and U.S. courts,” as well as a “significant junk fax case against Protus in the U.S.,” he said.