Sprint’s chairman said Wednesday in Japan what its CEO has been unwilling to say in Overland Park: Layoffs looming at the No. 4 wireless carrier will number in the thousands.
The “thousands” comment came from Masayoshi Son, Sprint chairman and head of Tokyo-based SoftBank Group Corp., which owns more than 80 percent of Sprint. He had just given SoftBank shareholders an update on his big American investment.
“Sprint is now in the position to increase the pace of user acquisition while cutting costs,” Son told reporters in Tokyo, according to Bloomberg News. “We will also cut staff. The cuts will be in the thousands.”
Asked Tuesday in Overland Park, Sprint chief executive Marcelo Claure had declined to put a number on the size of job cuts expected as part of a plan to slash spending by $2 billion a year. Claure told The Star he did not have a number in mind.
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A Sprint spokeswoman said Son’s statement spoke for itself and reiterated Claure’s comments.
“We are working through the process to identify areas across the company where we can reduce costs. That will include some job reductions. We will share more details when we can,” spokeswoman Melinda Tiemeyer said in an email.
Son’s “thousands” statement is almost a given inasmuch as he wants $2 billion in operating cost savings to be the minimum. Sprint’s costs still would be high compared with its rivals even after lowering them that much, he told investors. Sprint also plans cuts in equipment spending that would push the total to $2.5 billion.
The new wave of cost cutting comes after Sprint already had cut $1.5 billion in costs last year. That effort included 2,000 layoffs that Claure announced one year ago. And those job losses came on top of 1,700 job cuts before Claure’s year-ago call for more.
Sprint had 31,000 employees at the end of March, its last public update.
One reason Claure doesn’t have a specific number is the nature of this round of spending cuts. Each part of the company has to justify every dollar spent, every job kept and every program continued.
Claure said he gets weekly updates on 1,500 different initiatives to reach the $2 billion target. He calls the effort a “transformation” of Sprint, changing the way it does business rather than a routine effort to spend less.
“No one has done what Sprint is doing,” analyst Paul de Sa of Bernstein Research said about the U.S. telecommunications industry.
AT&T, Verizon, CenturyLink and Sprint all hail from traditional regulated telephone companies. For years, state agencies allowed them to charge customer prices that covered the companies’ reasonable costs of operating, plus a profit. Each now has more pressure to cut costs because revenues are less assured in competitive markets of today.
Sprint is under greater pressure to eliminate costs because its revenues have been falling as it shed subscribers.
In a note to clients, de Sa said Claure’s effort to transform how Sprint employees do their jobs likely won’t gain much traction while they’re worried about keeping those jobs.
Claure’s transformation effort means the $2 billion will include many cost cuts unrelated to payroll. One indication is that the company expects to incur between $1 billion and $1.2 billion in one-time costs to eliminate the total of $2.5 billion from its annual budgets for the years ahead.
Severance pay for laid-off employees is an example of those upfront costs to spend less money.
Other possible examples include upfront penalty payments to break long-term leases on underused buildings or cellular towers no longer relied on. Companies also find future cost savings by replacing operating systems, for example billing systems, with newer more efficient ones that require an investment now.
Sprint also has said only half of these upfront costs will come from cutting operating costs, with the other half coming from its capital investments that wouldn’t include payroll savings.
These are the kinds of changes that Son, in addressing SoftBank investors, said make him confident in Sprint’s turnaround. Although he called it “one big challenge” when talking to investors, Son said the turnaround strategy will work.
Son’s SoftBank was able to report a higher quarterly profit in the three months that ended Sept. 30, thanks to growth at its own wireless carrier in Japan. Sprint reported a $585 million loss in the quarter, though it saw a rare increase in the number of high-value customers on its network.