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Sprint CEO Gary Forsee Out, WiMax Venture In Doubt

CFO Paul Saleh will take over as the search for a successor "will focus on candidates outside the company," according to one board member.

As it struggles to find a path to compete with its larger rivals, Sprint Nextel, the No. 3 U.S. wireless carrier, said Monday its beleaguered CEO, Gary Forsee, will step down. Forsee's resignation is effective immediately.

Current CFO Paul Saleh will take over as acting CEO during the search for Forsee's replacement.

Media reports that Forsee's resignation was imminent have multiplied since The Wall Street Journal reported last week that the Sprint board of directors has been quietly searching for his replacement. Forsee was until Monday also the chairman of Sprint's board. Board member James Hance Jr. will take over as acting "non-executive" chairman.

The search for a successor "will focus on candidates outside the company," said board member Irvine Hockaday in announcing Forsee's departure.

Forsee took over as CEO of Sprint in 2003 and led the $35 billion purchase of rival cellular carrier Nextel Communications in 2005. Designed to give Sprint the footprint and subscriber numbers to compete with larger rivals Verizon Wireless and AT&T (previously Cingular Wireless), the merger has been plagued with problems with blending the two networks and retaining subscribers.

Sprint has released disappointing results for the last year and said Monday that it will post a net loss of 337,000 "post-paid" subscribers for the third quarter when it reports its earnings at the end of this month.

Forsee's second big bet was a $5 billion commitment to build a nationwide WiMax network for high-speed broadband. Designed to reach some 185 million people within three years, the WiMax effort was seen as a bold move beyond the cellular voice business, but also a risky gamble on unproven technology. Faced with escalating build-out costs, Sprint in July said it would partner with Clearwire, a startup headed by cell phone pioneer Craig McCaw, to collaborate on building the network.

Sprint has also said it will partner with Google to provide users of the network with Web services from the search giant, including e-mail, chat, and social networking tools. The two companies plan to work together to develop a mobile Internet portal over WiMax that will enable access to many of the Google services.

Though Sprint has reiterated its commitment to WiMax several times in the last few months, Forsee's departure leaves the fate of the WiMax venture uncertain.

Sprint has often been named as a takeover target -- most recently by U.K. fixed-line operator BT Group. BT has long been thought to be in need of a mobile play to fund its future growth as its core landline business plateaus.

Like Sprint, BT has also staked its future not on voice calls but on broadband Internet connections, including significant investments in WiMax. BT has reportedly been testing WiMax networks in rural locales since 2004.

The immediate task of Forsee's successor, however, will be stopping the bleeding in the company's core cellular business.

"They have made some improvements, but there are issues around customer care and network quality," RBC Capital Markets analyst Jonathan Atkin told Reuters. "There are also issues about the quality of customers that they're letting on," he added, referring to clients with poor credit records.

Sprint's share price closed down 2.7% on Monday but has risen almost 3% on the news of Forsee's ouster.

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