Sprint Nextel Corp. is continuing its battle to right a listing ship. The nation’s No. 3 carrier announced it would cut 4,000 jobs and close 8% of its stores after losing 683,000 postpaid subscribers and 202,000 prepaid users during the fourth quarter of last year.
Analysts were somewhat prepared for the dire announcement with Cowen & Co. telecom analyst Tom Watts last week raising his estimates of the carrier’s postpaid net losses from 200,000 customers to 350,000 customers and predicting the carrier to lose nearly 1 million direct customers during the quarter.
Sprint Nextel’s stock plunged more than 25% to $8.62 per share on the news, the stock’s lowest point in almost five years. Although Sprint Nextel said the move will save up to $800 million by the end of the year, it doesn’t appear to be calming nerves on Wall Street.
The second time
This is the second time in a year that Sprint Nextel has cut thousands of jobs. The company laid off 5,000 employees in January 2007 after it reported significant losses on postpaid iDEN customers. The company counted about 60,000 employees before this latest cut, which is expected to be completed in the first half of the year.
The company will be shuttering 125 company-owned retail locations and 4,000 third-party distribution points, it announced. The carrier currently counts 20,000 total distribution points, including nearly 1,400 company-owned stores.
Sprint Nextel said the cuts will come from a variety of internal positions throughout the company, including management.
Employees will be offered a voluntary separation plan and displaced employees will receive separation pay and other services, the company said. It expects to record a first-quarter charge for severance costs associated with the job cuts.
Sprint Nextel’s new CEO Dan Hesse is also said to be considering a plan that would move the company’s headquarters back to Overland Park, Kansas, which is where the carrier operated exclusively before it acquired Nextel Communications Inc. in 2005. The combined company has since made its official home in Reston, Va., where Nextel maintained its offices.
Watts noted previous attempts by Sprint Nextel’s management to right itself have proven unsuccessful and that the job cuts and possible relocation of the company’s headquarters could help.
“Previous plans to improve marketing; shift away from sub-prime customers; and manage network quality for [iDEN] subscribers, have not been enough despite [full-year 2007] guidance to spend upwards of $1.1 billion to improve operations,” Watts noted in a research report. “Streamlined decision-making from a central [headquarter] could facilitate a return to sub growth.”
Customer metrics
In the fourth quarter, Sprint Nextel said it added 500,000 net subscribers through its wholesale channels, which typically include its mobile virtual network operator partners like Virgin Mobile USA Inc., Helio L.L.C. and Qwest Communications International Inc. The carrier also said it added 256,000 net customers through its recently launched Boost Unlimited service, which was introduced in a handful of markets as a competitor to similar flat-rate, unlimited calling plans from Leap Wireless International Inc. and MetroPCS Communications Inc. In addition, Sprint Nextel said its remaining affiliates, including iPCS Inc. and Shenandoah Telecommunications Co., added another 20,000 net subscribers to its network. However, the carrier said it lost 683,000 direct postpaid subscribers and 202,000 customers to its traditional Boost prepaid service, for a total loss of 109,000 subscribers – both postpaid and prepaid – during the quarter.
For the year, Sprint Nextel lost more than 1.2 million direct postpaid customers, but through its other channels managed to add nearly 800,000 total customers during the year, ending 2007 with 53.8 million customers on its network.
The numbers could look even worse later this month after Sprint Nextel’s rivals release their own Q4 results. Analysts have recently upped their estimates for growth at AT&T Mobility, citing the continued success of Apple Inc.’s iPhone, while Verizon Wireless is expected to add nearly 2 million customers and T-Mobile USA Inc. around 1 million customers.
Having already announced its subscriber numbers, Sprint Nextel plans to announce its fourth-quarter and full-year 2007 financial results on Feb. 28.
