The Simpletel Dilemma

Abstract

Until recently, SimpleTel had been a star performer in the telecom industry, and the CEO had been a darling of the analyst community. Several years back, SimpleTel's found itself in a situation where customers were migrating to smaller, local telecom providers to avoid the congestion on SimpleTel's network. At that point, SimpleTel's leadership had decided to invest heavily in expanding network capacity. But now the company was left with a huge amount of unutilized capacity. That, along with debt obligations related to the massive investments in capacity, and lack of demand was threatening to push SimpleTel to the verge of bankruptcy. The previously celebrated CEO had fallen out of favor and shareholders were baying for his blood. He was forced to make an unceremonious departure, and the search for a savior had begun. Today, the compensation committee was due to deliberate on the compensation package for SimpleTel's new chief executive.

Excerpt

UVA-E-0299

Dec. 31, 2008

The SimpleTel Dilemma

Late. Ellen Smith was only a couple of miles from SimpleTel's headquarters in downtown Los Angeles, and there was a sea of people who were probably equally late for work. Today was an important day in SimpleTel's history. The compensation committee Smith headed was due to deliberate on the compensation package for SimpleTel's new chief executive.

Around her, people were desperately trying to exit the freeway onto local streets to get to their destinations. Strangely, this was reminiscent of SimpleTel's situation a few years back, when customers were migrating to smaller, local telecom providers to avoid the congestion on SimpleTel's network. At that point, SimpleTel's leadership had decided to invest heavily in expanding network capacity. But now the company was left with a huge amount of unutilized capacity. Maybe they were late. Late again!

Until a few years earlier, SimpleTel was regarded as a star performer in the industry, and the CEO had been a darling of the analyst community. Eight months earlier, the utilization factor, along with the debt obligations related to the massive investments in capacity, and the lack of demand was threatening to push SimpleTel to the verge of bankruptcy. The previously celebrated CEO had fallen out of favor and shareholders were baying for his blood. He was forced to make an unceremonious departure, and the search for a savior had begun.

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Keywords: CEO compensation