For Sprint, Job Cuts are Just the Start of Turnaround Moves
Published on: 18th Jan 2008
Note -- this news article is more than a year old.
NEW YORK (Dow Jones) Job cuts, while a step in the right direction for Sprint Nextel, aren't going to save the flagging wireless carrier.
The Reston, Va., company - under new Chief Executive Dan Hesse - needs to take more drastic moves to revitalize its reputation, analysts say. Specifically, it needs to simplify its multiple brands and services, consolidate its two networks into one, and nab hot handsets that can recapture some buzz. The steps become more necessary as the wireless market crowds and consumer spending weakens.
"Cutting costs isn't going to help solve the basic problem," said Craig Moffett, an analyst at Sanford Bernstein & Co. "They're not going to cut their way to greatness."
Sprint said early Friday it would eliminate 4,000 jobs and close 8% of its stores in a plan that would save up to $800 million a year. At the same time, the carrier posted a net loss of 683,000 post-paid subscribers - a sharply wider figure than even the bearish analysts on Wall Street had projected.
"Net adds on the whole were ugly," said William Power, an analyst at Robert W. Baird & Co.
Adding to the negative sentiment are the expectations that 2008 will see further downward pressure on subscriber trends, revenue and profitability, Sprint said in a release. It is the continuation of more than a year of customer defections and execution problems that led to the ouster of former Chief Executive Gary Forsee.
"The problem for Sprint: If they're losing 300,000 to 500,000 customers per quarter during a healthy time, what is the loss going to look like when the market deteriorates?" Moffett said.
Spokesman James Fisher said Sprint wasn't commenting beyond the release.
Analysts will be looking to CEO Hesse to provide more details on a turnaround plan during the Feb. 28 fourth-quarter earnings conference call, but Fisher said it was unclear how much information will be provided at that time.
Investors certainly need more reassuring. Sprint shares plunged as much as 30% Friday to $8.15, its lowest point since October 2002. Over those same five-plus years, AT&T shares have risen 56%, Verizon Communications is up 17% and the Standard & Poor's 500 Index has added 52%.
Sprint, while a highly visible company, lacks an identity at a time when the other players are differentiating themselves.
"They've been shoehorned as a category placeholder," said Robert Passikoff, president of Brand Keys Inc. "Everyone knows them, but no one knows them for anything in particular."
Verizon Wireless, jointly owned by Verizon Communications and Vodafone Group, stresses the reliability of its network. AT&T touts fewer dropped calls and boasts the Apple iPhone.
Sprint has attempted to stress the fast connection of its wireless network with its "Sprint Speed" campaign, but that hasn't been effective.
That is because consumers can't understand or don't relate to the ads, Passikoff said, adding that Sprint needs to more clearly communicate the advantages of its services.
"It's not about eyeballs anymore," he said.
Moffett, meanwhile, criticized Sprint for what he calls "a bewildering number of brands" at a time when carrier brands are consolidating. In addition to the core Sprint name, it also uses the Boost name for its pre-pay and low-cost flat-rate services. The company still supports Nextel services but wisely went away from the name when supporting business customers.
"Customers have no clear view of what Sprint stands for as a service provider," Moffett said. "Sprint is going to have to consolidate around a single brand and message."
In addition, Sprint needs to be more on top of changing handset trends. The company missed out on the Motorola Razr when it was popular, and also lost out on the iPhone. It has recently improved itself with the popular Palm Centro but still needs a wider, more attention-grabbing lineup.
Just as Sprint needs to move towards a single brand, it also needs to consolidate its networks by more rapidly moving its Nextel customers. Execution bungles have led to complications in running the Sprint and Nextel networks, including neglect of the Nextel service and a resulting subscriber exodus.
"One of the biggest opportunities for cost efficiency is consolidating the network," Power said.
Sprint runs on a wireless technology called CDMA, similar to Verizon Wireless. Nextel runs on a technology called iDEN, which virtually no one else uses. When Sprint acquired Nextel, management had insisted it would run both networks for years. But that strategy needs to change, analysts say.
"The time for tweaking the business model is long since past," Moffett said. "The time has come for major surgery."
Hesse, who pioneered the flat-rate plan at the old AT&T Wireless, has a preference for keeping things simple. Analysts will be looking for him to bring a clearer message and take action toward streamlining itself into one network.
Still, it is unclear how long it will take to turn around its reputation with consumers and its subscribers, and how effective the moves will be.
"We're in this cycle where the rich are getting richer," Moffett said, as AT&T and Verizon Wireless continue to gain market share. "That's a tough cycle to break."
-By Roger Cheng, Dow Jones Newswires; 201-938-2020; email@example.com
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