UPDATE: Sprint Nextel to Cut 4,000 Jobs and Close 8% of Retail Locations
Published on: 17th Jan 2008
Note -- this news article is more than a year old.
WASHINGTON (Dow Jones) Sprint Nextel said Friday it would eliminate 4,000 jobs and close 8% of company owned retail stores amid the loss of more key customers to rivals.
The store closings and the 6.7% reduction in Sprint's workforce represent the first major moves by new Chief Executive Dan Hesse, who was hired last month.
The company has been hurt by a reliance on credit-risky subscribers, mediocre customer service and a less attractive roster of handsets compared to competitors such as AT&T Inc., the exclusive provider of the iPhone.
In the fourth quarter, Sprint lost 109,000 subscribers overall and 683,000 postpaid customers -- larger than Wall Street analysts expected. Postpaid customer, who sign up for annual plans and pay at the end of each month, are considered the most valuable in the industry.
The steep loss in postpaid subscribers unsettled investors. Shares of Sprint sank more than 25% to $8.52 in recent trades, the stock's lowest level since autumn 2002.
Sprint's losses in that category total more than 1.71 million over the past six quarters. Most of those postpaid customers have flocked to rivals such as AT&T or Verizon Wireless, the joint venture owned by Verizon Communications and Vodafone Group.
Churn, or the number of customers who cancel service, remained stubbornly high at 2.3% in the fourth quarter.
Part of the reason was that Sprint has been culling out customers who've had trouble paying their bills. Sprint relied too much in the past on credit-risky consumers to generate growth and management has been taking steps to limit the company's exposure.
Pressured by subscriber defections, Sprint said it would cut 4,000 jobs from its workforce of 60,000, just one year after the company eliminated 5,000 positions. Sprint also said it would close 125 of its 1,400 company-owned retail stores.
Those cuts would save as much as $800 million on an annualized basis, the company said. Sprint aims to complete the reductions in the first half of 2008.
In addition, Reston, Va-based Sprint said it would take a onetime charge in the first quarter to reflect the cuts. Sprint might also record a non-cash charge in the fourth quarter to reflect a decline in the value of its assets, including its stock price.
Sprint expects to report full fourth-quarter results on Feb. 28.
The company didn't say whether it would consolidate its base of operations in its historic home of Overland Park, Kansas. The company also has headquarters in Reston, Va., a location acquired via Sprint's 2005 acquisition of Nextel Communications.
"We've made no decision on that yet," Sprint spokeswoman Leigh Horner said.
More challenges await
Longtime technology analyst Lisa Pierce of Forrester Research said Sprint needs to respond better to customers, introduce new services and features and improve its main wireless network.
"There's a lot Mr. Hesse can do that's not brain surgery to repair the company," she said.
Hesse, a longtime telecommunications veteran, was hired in December, two months after former CEO Gary Forsee resigned under pressure.
Hesse joined Sprint shortly before the company spun off Embarq Corp., its local-phone business, in 2006. At Embarq, he showed a talent for tight cost controls and strong marketing, both areas where Sprint has fallen short.
Yet while cutting costs will help, analysts say Hesse's biggest challenge is finding a way to keep Sprint's customers from defecting.
Sprint ended 2007 with 53.8 million wireless customers, barely higher than the 53.1 million it served at the end of 2006. AT&T and Verizon, by contract, added millions of new customers.
Market leader AT&T, for instance, gained a net 4.7 million mobile customers through the first three quarters of 2007 to 65.7 million. In the same time frame, Verizon added 4.6 million mobile subscribers to 63.7 million.
What's worse, the number of postpaid subscribers served by Sprint fell by 1 million in 2007 to 40.8 million.
Given Sprint's continued difficulties, analyst Walter Piecyk of Pali Research urged investors to dump several board members, half of whom have been directors since Sprint's ill-fated $35 billion acquisition of Nextel Communications in mid-2005.
Piecyk also said the steep drop in Sprint's stock price could "attract strategic buyers" while "buy-out firms will be taking a look at this company."
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