Sprint Nextel to cut 4,000 jobs


Published: Saturday, January 19, 2008 at 2:30 p.m.
Last Modified: Saturday, January 19, 2008 at 2:30 p.m.

KANSAS CITY, Mo. - Sprint Nextel Corp.'s stock plunged Friday after the wireless carrier said it will cut 4,000 jobs and close 125 retail locations in response to a steep drop in its customer base.

Sprint shares plummeted nearly 25 percent, prompting analysts to forecast even more cuts in the coming months as the nation's third-largest wireless carrier struggles to compete with AT&T Inc. and Verizon Wireless.

The layoff of about 6.7 percent of Sprint's work force and closure of 8 percent of its stores is to be completed in the first half of the year. Sprint said in a news release that the cuts will trim labor costs by $700 million to $800 million a year.

Some analysts said the moves would not be enough to stem losses resulting from a fourth-quarter loss of 683,000 so-called postpaid subscribers more than twice the net loss Wall Street analysts predicted for a net decline of 109,000 subscribers.

Subscribers who pay monthly for annual plans, known as postpaid subscribers, are the most profitable for wireless companies.

Sprint finished last year with 53.8 million subscribers.

Wall Street had estimated the company lost 250,000 postpaid subscribers, according to Goldman Sachs analyst Jason Armstrong.

Churn the number of customers who cancel service also remained high at 2.3 percent in the fourth quarter.

In addition to the layoffs and store closings, Sprint plans to shut down 4,000 of its 20,000 third-party distribution points, such as stalls inside consumer-electronics retailers, and reduce its use of contractors and outsourced services.

Sprint owns about 1,400 retail outlets.

In a filing with the SEC Friday, Sprint said it expected the job cuts to cost about $200 million, but it could not estimate costs associated with the closing of its distribution points and retail stores.

Company spokeswoman Leigh Horner said the company will offer severance packages to the affected workers, who include management and non-management employees. The 4,000 jobs is about 6.7 percent of Sprint's current work force of 60,000.

Friday's announcement continued more than a year of customer losses and service problems that led Sprint to oust former Chief Executive Gary Forsee and replace him last month with Dan Hesse, who had been CEO of Sprint spinoff Embarq.

Armstrong said in a client note that the cuts had been planned before Hesse took over, meaning Hesse "has yet to take his first cut at the business. He has historically been aggressive on cost cuts and conservative on guidance, so look for more reductions when he finalizes his plan."

The company's struggle dates to the 2005 acquisition of Nextel Communications Inc., which left it with incompatible networks, technical glitches, a customer base filled with credit-compromised subscribers and a dubious marketing effort.

Jeff Kagan, an Atlanta-based wireless analyst, said the job cuts and retail closings are a first step in Hesse's efforts to "stop the bleeding."

"None of the moves they've made in the last two years have struck gold," Kagan said. "Dan has to figure out what's broken and fix it. And he's got to do it quickly."

Walter Piecyk of Pali Research said the company needs to change its board of directors, who he said had not properly managed Sprint's acquisition of Nextel or developed a realistic plan to get the company on track.

"Any plan would be an improvement," Piecyk said. "They need to focus on the churn and to come up with some dramatic changes in their marketing plan so they aren't simply a 'me-too' operator."

Greg Gorbatenko, an analyst Jackson Securities, said Friday's moves may make Sprint a bit leaner and more nimble in the fiercely competitive telecommunications industry, but the company still will have difficulty righting itself.

"Hesse seems like old-school Sprint," he said. "They have to come up with new creative marketing, better customer service, some new ideas. They need to do some testing and go after it."

The company also said it could record a charge in the fourth quarter of 2007 for what's known as "goodwill impairment," reflecting the decreased value of its assets and share price. The company expects to issue its fourth-quarter earnings report Feb. 28.

Besides the layoffs and closings, Hesse and his staff are considering consolidating company operations at the operational headquarters in Overland Park, Kan. Horner said Friday that the company has made no decision on the headquarters location.

Another pressing issue is whether to continue a planned commercial rollout next year of the company's Xohm-branded WiMax service, which has been criticized within the industry as too expensive and experimental.

Sprint's shares dropped 24.81 percent Friday to close at $8.70.

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