Reuters
Sprint's Wireless Unit to Cut 1,600 Jobs
Thursday November 14, 4:41 pm ET
By Ben Klayman and Yukari Iwatani
CHICAGO (Reuters) - Sprint Corp. (NYSE:FON - News), the No. 3 U.S. long-distance telephone company, said on Thursday its PCS (NYSE:PCS - News) wireless unit will cut 1,600 jobs, or 6 percent of its work force, to trim costs as customer growth slows across the industry.
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The cuts come after Sprint PCS, the nation's No. 4 wireless telephone company, posted its first-ever loss of customers in the third quarter due to fraud and unpaid bills by low-end customers.
"It's a recognition that they're in a maturing industry or at least not as fast growing, and they need to get their cost structure in line given the current state of the industry, including pricing competition," said William Benton, a wireless analyst at William Blair.
Sprint PCS, like other wireless operators, has struggled to grow as the industry adds fewer customers after years of frenetic gains. Wireless operators have been embroiled in a fierce fight for customers, undercutting each other's prices for handsets and services and offering new features.
Len Lauer, president of Sprint PCS, told Reuters he did not anticipate any more job cuts in the short term, but he will continue to look at ways to make the company more efficient.
Sprint PCS shares rose almost 6 percent initially and closed up 14 cents, or 3.3 percent, at $4.35 on the New York Stock Exchange as analysts called the company's move "a good first step."
Sprint shares closed up 2.9 percent.
The latest announcement brings the total number of job cuts this year at Sprint PCS to 4,738, or about 16 percent of its work force. Sprint also said Thursday the PCS unit would cut 500 contractors.
"We decided to eliminate work in a number of areas (and) eliminate some processes to simplify things so we can get things to market quicker and we can enhance the experience with our customers," Lauer said in a telephone interview. Lauer recently moved over from Sprint's long-distance operations to lead PCS.
FAILS TO TACKLE BIG ISSUES
Still, analysts said PCS would likely have to make more changes to survive in the increasingly tough industry.
Guzman & Co. analyst Patrick Comack said Sprint still has not addressed the PCS unit's core problem of customer turnover, or "churn."
"This is good, but this doesn't tackle the big issues really haunting Sprint right now," said Comack, who rates both stocks "perform in line," equivalent to a neutral rating. "Sprint's real problems are its churn rate, its network quality, its customer service."
Comack does not own either stock. Guzman & Co. has a banking relationship with Sprint.
Benton said Sprint PCS needs to cut its customer acquisition costs by cutting handset subsidies and commissions. Sprint PCS offers some of the biggest subsidies for mobile phones, he said.
Benton, who has a "market perform" rating on PCS, does not own stock in Sprint or PCS, and his firm does not have a banking relationship with Sprint.
The severance costs associated with the job cuts are expected to result in a pretax charge of about $31 million in the fourth quarter, Sprint said. When fully implemented, the cuts are expected to result in annualized savings of about $170 million.
Lauer said only a small number of jobs being eliminated involve direct dealings with customers. Most are in support functions such as marketing, information technology, network and finance.
The Overland Park, Kansas-based company said the 1,600 full-time job cuts will be completed within the next few months at Sprint locations across the country.
So far this year, the PCS stock has fallen more than 80 percent, compared with a 45 percent decline in the Philadelphia Stock Exchange Wireless Telecom index (Philadelphia:^YLS - News), an industry benchmark.
[Harry: 200o out of AMD. 1600 out of Sprint. They are relative high payig jobs. That is a big chunk out of the economy. I can't believe we will have a Merry post Christmas season. I know you are not suppose to fight the Fed, but they have been consistent wrong for the last year and a half. The Fed is running out of ammo too. Once they get to zero there is not much they can do.] |
