Sprint Communications Company, L.P. Business Information, Profile, and History

History of Sprint Communications Company, L.P.

Sprint Communications Company, L.P., is the third-largest long distance telephone company in the United States and the principal subsidiary of the Sprint Corporation. The often confusing relationship between the two entities stems from the frequent changes in ownership of the long distance provider that occurred during the 1980s. United Telecommunications, Inc., a parent company of local telephone companies, acquired control of Sprint in 1989 and subsequently adopted the name of its new subsidiary as its own.

Sprint Communications has its origin with the Southern Pacific Communications Corporation, a division of the Southern Pacific Railroad. During the early years of electronic communication, it was common for railroads to install telegraph wire on poles along its tracks. This enabled dispatchers to monitor trains and relay track conditions to locomotive engineers. With the advent of telephony, these wires were converted to voice communications. The complex nature of railroad communications necessitated the installation of telephone switches and multiplexing equipment, which allowed several conversations to be carried over the same pair of wires. By the 1940s, these railroads had established enormous long distance networks that were independent of the Bell System and other telephone companies.

The Southern Pacific Railroad operated its telephone system as an independent company, called the Southern Pacific Communications Corporation, or SPCC. Like all telephone systems, this network used copper wire as its transport medium. But by the late 1950s, the Southern Pacific and other railroads started to use radio systems, which eliminated the need to maintain thousands of miles of aerial wire and enabled dispatchers to communicate directly with engineers. SPCC continued to operate its "switched private network" for official interoffice communications. But during the 1970s maintenance costs for the wireline system became uneconomic.

In 1983 the GTE Corporation offered to purchase SPCC, which included a satellite company and the Switched Private Network Telecommunications group, known as "Sprint." GTE, parent company of General Telephone, the United States's largest non-Bell telecommunications company, hoped to add the system to its own toll office network to form the backbone for a new long distance unit to compete with AT&T. Federal antitrust action obliged AT&T to divest itself of its 22 local Bell companies by 1984. In addition, AT&T's long distance monopoly was ended, clearing the way for competition.

GTE knew that a long distance network would be relatively simple to create and extremely profitable once in operation. It had the engineering and switching capability, but lacked the long distance corridors in which it could install wiring. While Sprint came with a dilapidated wire network, it offered hundreds of miles of open easements between major cities. GTE completed its acquisition of SPCC later in 1983, rechristening the operation GTE Sprint Communications.

A year earlier, a second non-Bell telephone company called United Telecommunications began development of its own long distance company, United Telecom Communications, later called US Telecom. Unlike Sprint, US Telecom was a satellite-based system designed to handle commercial data communications. By 1984, hundreds of long distance companies had emerged, each looking for just a piece of AT&T's hugely profitable business. Few of these actually operated alternative networks, choosing instead to simply aggregate traffic over AT&T's high-capacity data lines.

GTE Sprint installed fiber optic cable along its routes--a process begun by SPCC--because the transmission medium operated at extremely high frequencies, used virtually incorruptible digital signals, and was impervious to electronic interference. A single cable, the size of a common electrical cord, could carry as many calls as a three-foot thick copper cable.

The technology wasn't lost on US Telecom, whose president, Bill Esrey, announced that the company would construct its own nationwide fiber optic network and fight for a position in the long distance market along with GTE, MCI, and AT&T. To bolster the small network, United Telecom purchased U.S. Telephone Communications, a fledgling Dallas-based long distance carrier, and easements along key routes of the Consolidated Rail Corporation between cities in New England, and mid-Atlantic and Midwestern states.

Esrey's plan for a long distance company was denounced as impossible by experts quoted in Telephony, TE&M, and other trade publications. The critics would probably have been proven correct--the costs of assembling such a network were astronomical. But Esrey, who was named president and CEO of United Telecom in 1985, believed his goal could be attained--before competitors gained a lock on the market--by taking on a partner. In GTE Sprint, Esrey saw a well-capitalized partner with an identical strategy and a largely complementary network. He organized discussions with GTE, and in 1986 announced the merger of US Telecom and GTE Sprint. The 50-50 joint venture (technically a limited partnership) was created on July 1, 1986, under the name US Sprint. Commensurate with the creation of US Sprint, the company introduced its distinctive logo, a diamond split by a series of horizontal lines. The lines, reportedly meant to represent fiber optic channels, become thicker from left to right.

Because United Telecom and GTE operated hundreds of local exchanges, they had to guarantee that their customers would have equal access to AT&T and MCI. This would prevent US Sprint from gaining a long distance monopoly among United Telecom and GTE customers. In October of that year, the new company introduced an imaginative advertising campaign, featuring a tiny pin that was dropped on a table in front of a telephone handpiece. As it hit, the "ting" could be heard on a phone thousands of miles away. The ad maintained that this clarity was made possible by US Sprint's fiber optic network, implying that it was superior to AT&T's wireline system and MCI's microwave network. The image in the advertisement was so powerful and the campaign so successful that the tiny pin came to symbolize the superiority of US Sprint's network.

Within nine months, US Sprint had doubled its number of customers. But the company was ill-prepared for this growth. Bell companies, which dominate the nation's population centers, were slow to establish equal access to US Sprint, MCI, and other competitors of AT&T. Often, customers had difficulty using US Sprint. Many who got through reportedly received wildly inaccurate bills. These problems took months to iron out, inspiring AT&T to launch a massive ad campaign to woo customers back.

United Telecom and GTE channeled more than $2 billion into US Sprint, mostly for construction and marketing. The company issued millions of "F NCards" (for Fiber Optic Network), containing dialing instructions that would enable callers to gain access to US Sprint from any telephone. The company also built a National Operations Control Center in Kansas City, joining another in Atlanta. The NOCC managed call routing nationwide and enabled US Sprint to offer the nation's first non-AT&T long distance operator services. US Sprint equipped its network almost entirely with switches built by Northern Telecom--also a major competitor of AT&T, but in the manufacturing market.

In planning its long distance network, US Sprint adopted a flat architecture in which calls were passed from center to center, and routed around congested switching offices. By contrast, AT&T's network used a hierarchical design, in which calls of only a few dozen miles were routed over a bottom-tier network. Calls of a few hundred miles were passed along to a higher-tier network, and calls of a thousand miles or more were carried on yet another network.

The simplicity of US Sprint's network enabled engineers to make changes in its switching software instantaneously. AT&T's system required a series of staggered cutovers. One of the changes US Sprint made was the conversion in 1988 to Signaling System 7, a highly efficient routing technology that improved network management and speeded call completion. The system also enabled US Sprint to begin offering its own 800 services in competition with AT&T.

In a spirited demonstration of the obsolescence of the microwave networks operated by AT&T and MCI, US Sprint blew up one of the last of its own microwave towers in February of 1988. This action inspired AT&T and MCI to speed efforts to convert their systems over to fiber optic cable. By May of that year, US Sprint completed the last cutover of traffic from the old US Telecom and GTE Sprint networks to the fiber optic system. The company was now 100-percent fiber optic.

In November of 1988 US Sprint completed construction of its third transcontinental route. This helped US Sprint to win a contract to handle 40 percent of the federal government's long distance business, through a system called FTS2000. While AT&T won the remaining 60 percent, the division ensured that the government could maintain long distance communications in the event either company suffered a network failure. The government became US Sprint's largest customer. Companies such as Grumman, Calvin Klein, Elizabeth Arden, Chesebrough-Pond's, and National Starch also became major US Sprint accounts.

In April of 1989, US Sprint won its battle to gain access to millions of Bell company telephones whose long distance service could be provided only by AT&T. U.S. District Court Judge Harold Greene, who presided over the break-up of the Bell System, ordered pay phone franchisees to select a long distance company or be assigned one at random. This provided US Sprint with an opportunity to gain thousands of new accounts, handling long distance calls placed from Bell company pay phones. Also in April, US Sprint reported its first profitable quarter, earning $27.5 million.

GTE, however, had encountered financial difficulties resulting from a battle with another party for control of options on US Sprint. The company also needed cash to pay down debts and finance other areas of its business. GTE's chairman Rocky Johnson announced that his company wanted out of US Sprint. United Telecom purchased a 30.1 percent interest in US Sprint from GTE in July of 1989, leaving Johnson's company with a 19.9 percent stake until such time that United Telecom could generate the funds to complete the buyout.

In August US Sprint acquired Long Distance/USA, a Honolulu-based company whose bilingual agents handled calls between Hawaii and Japan. The acquisition left US Sprint with a 50 percent market share of call traffic out of Hawaii. Telenet, a satellite communications division that evolved from the SPCC's original satellite operations, was merged with US Sprint's international voice services in January of 1990 and renamed Sprint International.

Expanding its presence in the global telecommunications market, US Sprint purchased a 50 percent interest in PTAT-1, a transatlantic fiber optic cable system run in conjunction with Britain's Cable & Wireless. The relationship was later expanded to allow US Sprint to engage in joint marketing efforts in Britain with Cable & Wireless. The company established another marketing arrangement with Maryland National Bank (later called MBNA America) to issue Visa and MasterCard charge cards. The "Priority" Card provided all the features of the F NCard, while enabling users to build bonus rebates from credit purchases. It was also intended to match a similar card from AT&T.

US Sprint launched a new advertising campaign in October of 1990, featuring the actress Candice Bergen, star of the television series Murphy Brown. Bergen's effectiveness as a spokesperson grew with the show's popularity, eventually making her the most valuable spokesperson in advertising.

By 1991, US Sprint had garnered a seemingly small nine percent of the nation's long distance business, placing it behind MCI, with 14 percent, and AT&T, with 64 percent. This was, however, nine percent of a $70 billion market, and it provided United Telecom with about half of its total annual revenue. Hard-earned market share gains of only a tenth of a percent represented $70 million in revenue.

To win those bits and pieces of the market, US Sprint inaugurated its Priority marketing program, extending discounts to customers with monthly billing of $20 or more. But much of the company's efforts were concentrated in the business market. US Sprint operated more than 1,200 videoconferencing centers, enabling business customers to conduct visual presentations without having to fly and lodge their participants. In addition, US Sprint was the first major carrier to offer public frame relay data service, a high-speed digital transmission service unencumbered by standard error-correction, thus allowing more information to be transmitted in less time. This was followed by worldwide virtual private network services, in which a customer could communicate between offices in different countries as easily as between offices in the same building.

Continuing its international growth, US Sprint was licensed to construct a fiber optic network in the United Kingdom, using canal and river routes owned by the British Waterways Board. It began planning partnership agreements for several more submarine cable projects spanning the Atlantic and Pacific Oceans and the Caribbean. The company branched into Canada and established interconnection arrangements with TelMex, the Mexican telephone authority, and the Russian telephone network. US Sprint also entered the Unisource partnership with Swedish and Dutch firms, enabling it to win over another major customer, Unilever.

United Telecom completed its acquisition of US Sprint from GTE in 1992. The long distance group's revenues dwarfed those of United Telecom's other operations, necessitating a corporate reorganization.

Bill Esrey led an effort to drop "US" from the Sprint name, in order to better reflect the globalization of the company. He also suggested changing United Telecom's name to Sprint, thereby making more efficient use of promotional budgets. Thus, US Sprint became Sprint Communications, and United Telecom was renamed the Sprint Corporation. Later that year the parent company successfully bid to acquire Centel, a company with local telephone operations in 13 states and numerous cellular properties. The Centel operations were folded into Sprint.

While Sprint Communications was now part of a company with extensive local, long distance, and cellular operations, it remained the company's largest and best-known division. Still the nation's third-largest long distance company, with a fairly static ten percent of the market, Sprint Communications is likely to reap its greatest growth in international markets.