Sprint embarks on $2.5 billion cost cutting effort likely to cost jobs

Sprint Corp. is embarking on an ambitious $2.5 billion cost-cutting plan it admits will probably include layoffs.

A statement Thursday afternoon from the Overland Park-based company did not say how many jobs would be lost. The company has just started identifying costs it can cut and doesn’t have a jobs target.

However, payroll savings alone would not reach the targeted savings. Sprint had 31,000 employees as of March.

“We have begun an effort to significantly take costs out of the business so the transformation of the company will be sustainable for the long-term. It is likely that some jobs will be impacted but it’s premature to discuss the details as we are in the early stages of the process,” the statement said.

The $2.5 billion cut would amount to a nearly 7 percent reduction in the $36.4 billion Sprint spent operating its business during its most recent fiscal year. Revenues that year were only $34.5 billion, a key reason the company was burdened with a $3.3 billion loss.

The planned cut dwarfs the first round of cost-cutting under CEO Marcelo Claure. Over his first year, Sprint eliminated $1.5 billion in costs, achieved partly by 3,700 job cuts. That amounted to 11 percent of the company’s workforce.

“That’s the only way. They have to cut costs,” said Kate Pearce, senior analyst at Compass Intelligence.

Pearce noted the industry’s recently fierce pricing wars, with Sprint and T-Mobile in particular fighting to win customers from each other and from larger rivals AT&T and Verizon.

The two smaller companies have been rolling out one low-price promotion after another and spending lots of money on advertising. They’ve been attracting customers but not getting as much money out of them.

An online report by the Wall Street Journal cited a memo from Sprint’s newly hired chief financial officer, Tarek Robbiati. It said the cost cutting “inevitably will result in job reductions,” according to the Journal.

“The main thing to consider when requesting to spend money is to take an owner’s mindset by treating every dollar as if it were your own,” Robbiati wrote in the memo to staff, the Journal said.

Robbiati is a former finance officer of Australia-based Telstra International Group. He joined Sprint in August.

Claure has spoken publicly about Sprint’s need to reduce its costs so they are more in line with its rivals. Analysts have estimated previously that Sprint spends significantly more per wireless subscriber than its competitors.

The company faces other financial pressures. It needs to refinance $3.6 billion in debts next year, according to a report from Paul de Sa, an analyst at Bernstein Research.

And Moody’s Investors Service further downgraded Sprint’s credit rating last month deeper into the “junk” range.

Claure also has emphasized other areas of focus besides cost cutting. He is building a competitive wireless network that includes plans to add towers and other cell sites to the system, and he is pushing to provide consumers with a better “value proposition” that includes forming a new branding strategy and enhancing Sprint customers’ experience.

Any cost savings in other areas would provide money to continue improving its network and pursuing other initiatives. Sprint, for example, has been hiring drivers to deliver new phones to customers as part of its Direct 2 You program.

Sprint said last weekend that it would not bid in an expensive government auction of wireless licenses that some estimates said could cost it upward of $10 billion. The licenses give carriers the right to use radio frequencies to handle data signals that subscribers send and receive when they view videos, explore the Internet and use other popular features of cellphones and tablets.

The company also is setting up financing arrangements that would help it conserve cash. Some analysts have questioned how rapidly the company is spending money.

Sprint did not release the memo. Here is Sprint’s statement in full:

“Recently we communicated with Sprint employees to update them on the progress we are making to transform our business. We discussed the improvements we have made to many of our key metrics including net adds, churn, and our network. We are laser focused on creating a superior network, being the price leader and providing an amazing customer experience. We are pleased that our business has momentum and we are heading in the right direction.

“We also shared with our top leaders that in order to be successful, we must change our cost structure so we can fuel our growth and operate more efficiently. We have begun an effort to significantly take costs out of the business so the transformation of the company will be sustainable for the long-term. It is likely that some jobs will be impacted but it’s premature to discuss the details as we are in the early stages of the process.

“This is a difficult process and we won’t make decisions lightly. Whatever decisions are made, we will inform our employees first and treat any impacted employees with dignity and respect.

“We believe the steps we are taking across our business are critical to ensuring Sprint is a viable, successful and sustainable business for the foreseeable future.”

This story was originally published October 1, 2015 at 6:21 PM with the headline "Sprint embarks on $2.5 billion cost cutting effort likely to cost jobs."