Sprint Corp.’s sweeping shake-up got a key public thumbs-up Tuesday from the big boss in Tokyo.
Masayoshi Son, whose SoftBank Corp. owns 80 percent of Sprint, also squelched speculation he would sell the Overland Park-based wireless carrier just two years after gaining control.
Son’s endorsement was delivered in a conference call with Wall Street analysts after Sprint reported a quarterly loss and slipping to No. 4 in subscribers, behind T-Mobile. Son’s vote of confidence allows Sprint chief executive Marcelo Claure to push ahead with a five-point turnaround plan to return the company to growth and profits in two to four years.
Claure, in an interview with The Kansas City Star, said he had sought the backing of Son, who is chairman of Sprint and chief executive of SoftBank.
“I wanted to make sure he was committed and that he would stop trying to sell Sprint,” Claure said. “He made it very public that Sprint is not for sale anymore.”
SoftBank paid $21.6 billion for control of Sprint in 2013 with plans to seek a merger with T-Mobile. Combined, the rivals would be nearly as large at Verizon and AT&T, which dominate the industry.
Regulators in Washington killed Son’s merger hopes and his vision of the way forward.
“I had a plan to have consolidation in the industry. That’s no longer the case,” Son said during the call with analysts. “I lost confidence for some time.”
Son said his refound confidence stems from the turnaround plans that he and others at SoftBank helped form, often working from 10 p.m. to 2 a.m. Tokyo time.
“I am extremely excited about the turnaround of Sprint,” Son said. “I don’t want to sell the company.”
Both men’s comments came as Sprint reported that it added a relatively weak 527,000 new subscribers in April, May and June and fell behind fast-growing rival T-Mobile in total subscribers for the first time.
Sprint fell to No. 4 with 57.668 million subscribers and T-Mobile climbed to No. 3 with 58.908 million subscribers at the end of June. T-Mobile had reported its results previously.
Sprint also said Tuesday that it lost $20 million in the three-month period, which marks the first quarter of the company’s financial year that ends next March 31. A year ago, Sprint had posted a profit of $23 million in the quarter. Both quarterly earnings equaled 1 cent per share.
Sprint’s revenues in the recent quarter totaled $8 billion, down from $8.8 billion a year earlier.
Claure told analysts during the call that his plan includes continued network improvements, new financing arrangements for the company and continued “aggressive” cost cutting.
Sprint already is in the process of cutting $1.5 billion in costs this year, and Claure said cuts of that scale would be repeated going forward. Savings so far included 3,700 job cuts after he came aboard in mid-2014.
Claure, however, said savings have come mostly from sources other than labor, such as reduced roaming charges for using other carriers’ systems and helping more consumers online rather than on the phone.
He would not, however, rule out more job cuts.
“I cannot guarantee that there will not be further layoffs,” he told The Star. “But I’m not telling you that I have a plan to have layoffs.”
Sprint’s network improvements include adding thousands of additional cellular towers along with tens of thousands of small cellular sites, such as on the sides of buildings, and deploying more of its unused wireless spectrum that carries cell signals to and from phones and towers.
New financing arrangements involve independent leasing companies and will save Sprint’s cash for other uses, the company said. Cost cutting also will help provide cash to Sprint’s coffers.
With the new financing arrangements, Sprint won’t need to raise money in public capital markets by selling bonds or new shares of stock. Nor will it sell any of its wireless spectrum in the foreseeable future, which had been a possibility.
Those two points were the “most important” in the company’s announcement, according to analyst Jennifer Fritzsche at Wells Fargo Securities. She noted that some skeptics mistakenly see the company’s cash needs as a big problem.
“These are two HUGE points as this ‘Sprint has its back up against the wall’ theory is the heart of many of the Sprint bear” outlooks, she said in a note to clients.
Craig Moffett of MoffettNathanson Research, who is one of those skeptics, dismissed the leasing company plans as not changing Sprint’s financial situation. Sprint executives, for example, had said that it remains to be seen whether the new financing arrangements would be counted on the company’s balance sheet that tracks its assets and liabilities, or whether it would be “off balance sheet” financing.
“Off balance sheet debt through new funding vehicles is still, well, debt,” Moffett said in a note to clients.
Claure, in his talk with analysts, emphasized progress during the quarter.
The share of customers leaving Sprint, called churn, hit a record low mark, and the company gained more higher-revenue phone subscribers, called postpaid customers, during the quarter. Sprint had steadily lost these postpaid phone subscribers to other carriers.
They also are key to Sprint’s financial success, as each handset connection generates $60 to $70 a month in revenue, more than prepaid customers, who buy minutes before using them, and far more than the $10 a month generated from a postpaid customer’s tablet connection to the Sprint network.
Sprint shares closed up 4.5 percent, or 15 cents, at $3.49 after the earnings report and comments to analysts.
As for slipping to No. 4, Claure has said previously that consumers don’t care about the competition for No. 3 in national wireless subscriber totals. Still, Claure congratulated his counterpart at T-Mobile, John Legere, in a friendly Twitter exchange.
The switch in national rankings comes belatedly to T-Mobile chief executive Legere, who had prematurely boasted in mid-2014 that the magenta carrier would surpass Sprint in subscribers by the end of the year. Sprint, however, managed to hang on, and Legere stretched out his forecast in a blog post of predictions for 2015.
Sprint’s report comes a day after the company added two top executives to its management team, including a new chief financial officer. Tarek Robbiati, an Australian finance and telecommunications executive, is taking over from Joe Euteneuer as chief financial officer. Sprint also named Günther Ottendorfer as its chief operating officer to lead a new technology office. Each will move to the Kansas City area, as have others Claure has hired from Canada and Brazil.
Claure said he was seeking a successor to longtime general counsel Charles Wunsch, who plans to leave the company.
“We now have the team we believe will make Sprint successful going forward,” he said.
Sprint’s five-point turnaround plan
CEO Marcelo Claure laid out his vision for making Sprint growing and profitable in the next two to four years:
1. Turn Sprint’s network into a competitive advantage.
2. Reduce costs to levels equivalent to rivals’ costs.
3. Develop a compelling brand and value proposition.
4. Finance the turnaround.
5. Attract and retain world-class talent.