By Michal Lev-Ram

Ever since Sprint acquired Nextel in 2005, the company has become the poster child for poor customer service. It has repeatedly received the worst marks of all five major U.S. mobile operators in a semi-annual customer care survey by J.D. Power & Associates, and has been bleeding subscribers by the millions for the past few quarters. Sprint’s (S) new management has said that fixing its customer service problem is the number one priority for the company. To that end, it’s enlisted chief service officer Bob Johnson to make some sweeping changes to the way Sprint runs its call centers, handles account setup for new subscribers and charges for its monthly plans.

Fortune spoke to Johnson, who took on the job last October, to find out how Sprint is trying to change its ways – and its reputation.

How big of a priority is fixing your customer service problem?

Dan [Hesse, Sprint's CEO] has made it clear that this is the number one priority. This issue has tentacles to so many other aspects of our performance. This is why I have been given the honor of starting each weekly operations meeting. And we are now working together cross-functionally to address all of the “pain points” in the customer experience.

What is the number one reason customers call in and why is it so difficult to help them?

The highest volume of calls is for billing errors – these are typically generated through the account setup process. But there are really two problems here. The first is what we call the “upstream problem.” This is the reason customers call in the first place. Then there is the “downstream” problem – this is what happens after a customer actually gets on the phone with one of our representatives. We used to pay our agents based on average handle time. And if you think about it, if you have an incentive to have quicker calls, you will try to get off the phone as fast as possible, and you won’t necessarily solve the problem the customer is having. So it used to take an average of four to six calls to get a billing problem solved.

So how is Sprint addressing this issue?

In February we started using a new metric called “first call resolution” instead of handle time as a way of measuring a representative’s success. This means that whenever possible we address the problem completely on that first call. We don’t want that call to have to go from one center to another.

What are you doing on the “upstream” side — to make sure that subscribers have fewer reasons to call in the first place?

Many people call in with billing problems, especially overages [fees for using services like texting and data beyond what's allotted in their plan] so in March we launched “Simply Everything” [an unlimited voice and data plan that costs $100 a month], and throughout this year you will see more and more simplified pricing from us. We are also getting our customers’ electronic signature on their account order in stores at the point of sale so that we can verify that this is in fact what they ordered. Then, for all new activations there is a welcome call – the first call that a customer makes is intercepted and a representative goes over what is on their account with them.

As of end of May we have also completed a 14-month process to convert all of our customers to one billing system. So customers that have both CDMA and iDEN [the two networks operated by Sprint] phones are now on the same billing platform, with one look and feel.

Are you seeing any results from these changes?

We’re already seeing improvement. I am a long way from declaring victory, but we have improved in two key areas – first-call resolution and customer satisfaction – for four consecutive months now.

But it’s not just improving the actual customer service you give subscribers, it’s also changing the company’s image. How long do you think that could take?

There is a lag time between customers experiencing an improvement and them getting the word out. How long will that take? I don’t know. I do know that we’re making progress. But this is more like steering an ocean liner than a speed boat.

By Michal Lev-Ram

Churn, or the rate at which customers defect to rival carriers, is one of the most important metrics for measuring the success of a wireless carrier.

Unfortunately for Sprint (S), it has one of the industry’s worst churn rates. On Monday it revealed that 1.09 million of its subscribers decided to take their business elsewhere in the first quarter as the company reported a net loss of $505 million, or 18 cents a share, compared to a loss of $211 million, or 7 cents a share, a year earlier. Revenue dropped 8% from a year ago to $9.33 billion. Excluding a number of one-time charges, such as job-cut costs and merger-related expenses, Sprint’s adjusted profit slid to 4 cents a share from 19 cents a year ago.

Meanwhile, rivals Verizon (VZ), AT&T (T) and T-Mobile (DK) saw their churn rates for postpaid accounts fall during the same period, and their customer base grow. Verizon added 1.5 million wireless subscribers, and 1.3 million new customers signed up with AT&T. Even T-Mobile, the smallest of the top four U.S. carriers, added nearly a million customers the last quarter, tipping its total subscriber base to slightly over 30 million for the first time.

Many of Sprint’s recently-departed subscribers also happen to be some of its best customers. That means that a large percentage of defecting Sprint users are the type of people likely to pay for higher-priced data plans, pay extra fees for text messaging and downloading ringtones or buy more expensive phones. That is a big part of the reason Sprint’s average revenue per customer declined by about $2 compared to the first quarter of 2007.

“We continue to place the highest priority on reducing churn by improving the customer experience,” CEO Dan Hesse said in a statement Monday.

He told analysts on a conference call Monday that he is investing to acquire new customers as well as to keep existing ones from fleeing.

Improving customer service and simplifying rate plans are two ways Sprint is trying to keep retain subscribers. Later this summer, the company will also launch an iPhone competitor it hopes will provide an incentive for customers to stay – current customers, as opposed to new subscribers, will have first dibs on a Samsung touchscreen called the Instinct.

But it will likely be some time before those changes turn around Sprint’s churn rate. Hesse, however, is optimistic. On Monday he told analysts that in March, “We began to see improving trends in churn.”

By Michal Lev-Ram

When Sprint Nextel CEO Dan Hesse joined the wireless company last December, he inherited a backlog of problems. Among them: The logistical nightmare of managing two different networks formed by Sprint’s merger with Nextel, a high rate of subscriber defections and a bad (okay, horrible) reputation for customer service.

At his first conference call with analysts in February after Sprint (S) announced disappointing fourth-quarter earnings, Hesse himself admitted that “the issues we face are more difficult than what I had expected to find.”

But that didn’t stop the former AT&T (T) executive from quickly implementing some much-needed changes. Within five months, Hesse has cut costs by closing 8 percent of Sprint’s retail stores and laying off nearly 7% of the staff. He also made senior management changes, launched a new unlimited voice and data plan, and just this week inked a joint WiMax venture with Clearwire (CLWR) and a slew of high-profile investors.

Now, as Sprint prepares to release its first-quarter earnings results Monday, investors are looking to Hesse to see what he’ll do next to turn the wireless carrier around.

“So far the read on him is cautiously optimistic,” says RBC Capital Markets analyst Jonathan Atkin. “He’s taken prudent steps to evaluate what the issues are, and made progress on his checklist – including the critical item of how to move forward with WiMax.”

Sprint’s investment in WiMax – a next-generation network that promises faster speeds well-suited for data services like web browsing and music downloads – has been a main point of contention among investors. Under former chief executive Gary Forsee, the company poured about $5 billion into the technology, only to find its cutting-edge service bogged down by delays and an inability to seal a WiMax partnership with broadband Internet provider Clearwire.

But last Wednesday the two companies announced they had finally come to an agreement and would combine their wireless broadband operations to create a $14.55 billion venture. Intel (INTC), Google (GOOG) and a handful of other companies have agreed to invest $3.2 billion in the new company.

In an interview with Fortune earlier this week, Hesse said the upcoming WiMax service will give Sprint a “differentiating advantage.”

“This allows us to be the only company to offer 4G [fourth-generation network] services,” said Hesse. “WiMax as a technology is available now and it works now.”

Of course, it’s still not clear exactly when the new service will be available to Sprint customers, though the Clearwire joint venture is expected to close by year-end. Sprint rivals AT&T and Verizon (VZ) have said they are committing to a competing fourth-generation network technology called Long Term Evolution, or LTE, which is expected to become available around 2010.

With its increasingly narrower time-to-market advantage, WiMax is still far from a guaranteed success. And in the meantime, Hesse has his hands full trying to put out other fires.

Come Monday, investors will be looking for news regarding Sprint’s core business, selling voice and data services on its CDMA network, which has been bleeding customers. Subscribers have also been defecting from the iDEN network the company inherited when it merged with push-to-talk service provider Nextel in 2005.

“We are still looking for evidence that Sprint is generating positive momentum around its postpaid marketing to return back to positive postpaid subscriber growth over time,” Citigroup analyst Michael Rollins wrote in a recent report.

In an effort to retain and attract customers, Hesse has already embarked on a new brand campaign that aims to position Sprint as the “superior network.” But Rollins says that the company hasn’t “gone far enough to differentiate its message on network quality perception or price.”

Hesse has also said that improving Sprint’s customer service is one of his top priorities.

“Not only are we not attracting enough new customers, but our existing customers are leaving us at too big a rate,” Hesse had told Fortune in an interview last February, after Sprint posted a fourth-quarter loss of $29.5 billion and a continued decline in subscriber numbers.

There’s no question Hesse has his work cut out for him. But if his first five months in at the company’s helm are an indication of what’s to come, you can count on seeing more changes at the number three mobile operator – for better or worse.