Sprint to Lay Off 4,000, Close 125 Stores after ‘Disastrous’ Q4 Subscriber Results

Sprint will cut 4,000 internal jobs, management and rank-and-file, and use fewer outsourced services and contractors, it said. It plans to kill 4,000-plus third- party distribution points and close about 125 -- or 8 percent -- of company-owned stores, it said. Sprint has about 20,000 distribution points, including about 1,400 retail locations.

Labor costs should fall $700 to $800 million annually by year end, said Sprint, which expects to complete layoffs the first half of 2007. Sprint will offer fired workers severance pay, plus outplacement and other services; severance costs will appear as part of the company’s Q1 results, it said.

Sprint bled 683,000 postpaid subscribers in Q4 2007, double the net loss from Q3 and 377,000 more than it lost in Q4 2006. That’s “extremely disappointing,” Stanford Group analyst Michael Nelson said in an interview. Most of Wall Street predicted Sprint results would be weak, but 683,000 is “significantly worse” than the consensus, he said, noting that he predicted 350,000. Post-paid churn was 2.3 percent, the same the carrier reported in Q4 2006 and Q3 2007. Voluntary churn improved in both CDMA and iDEN customer bases, but a tighter credit policy forced it to terminate more subscribers behind on their bills, Sprint said.

Gross adds must be to blame for the high customer loss, since churn didn’t rise, Nelson said. Sprint didn’t disclose the figure Friday. Rather than solve problems, closing stores will “further deteriorate” Sprint’s ability to sign customers, Nelson said. Sprint needs better marketing; having fewer retail locations only makes matters worse, he said. Current Analysis’s William Ho agreed. A turnaround plan “better include coming up with a marketing message that resonates, because I still have no idea why, as a consumer, I should go to Sprint.” Before the merger, Sprint and Nextel had strong identities -- Nextel as the “blue collar” carrier and Sprint as the handset technology leader, Jefferies analyst Jonathan Schildkraut said in an interview. Since the merger, Sprint marketers have struggled to develop the brand, he said.

Sprint lost 202,000 traditional pay-as-you-go users on its MVNO Boost Mobile, but 256,000 net adds to the Boost Unlimited plan gave the carrier an overall prepaid net gain. Sprint reported a net gain of 500,000 wholesale subscribers and added 20,000 within affiliate channels, it said. Boost numbers “would have been OK,” except that most Unlimited subscribers seems to have come from the traditional plan that lost 202,000, Nelson said. In reality, Boost probably only added 54,000 customers, he said. MetroPCS is likely taking the most market share from Boost, Nelson said. Boost had 100,000 subscribers in Los Angeles prior to a strong Metro launch last summer, he said.

Sprint will lose customers through 2009, Pali Research said in a note, predicting losses of 2.3 million customers in 2008 and 2009. But increased competition will pressure average revenue per user, it said. “We expect this to result in high single digit decline in revenue each year.”

“Sprint could attract strategic buyers” since its stock price is about $10 less than the last time buyout talk arose, Pali Research’s Walter Piecyk said. Cable and satellite companies seeking to build bundles will be most interested, but a Silicon Valley player bidding in the 700 MHz auction also could jump in, the analyst said. Predicting a takeover is “a great call,” Schildkraut said. Verizon, Alltel and cable companies could be interested, but would face obstacles, he said. Verizon would meet regulatory resistance, Alltel is “heavily in debt,” and cable might still be “hesitant” on quadruple play bundles, he said.

Sprint’s board could be a major impediment to a buyout, Piecyk said in a note to clients. “Investors should target the removal of at least three board members in the upcoming election” and “encourage resignations in advance.”

In the meantime, Sprint should carve out and sell Nextel’s legacy iDEN network, Piecyk said. The network will continue to bleed customers and Sprint “is clearly incapable of reversing the downward trend, will have great difficulty migrating customers” to a planned CDMA-based push-to-talk successor, and is “unwilling to talk” to ex-Nextel CEO Tim Donahue about strategy, he said. Sprint might look to package iDEN with the WiMAX business in a sale, he added. Contrary to speculation, Clearwire probably won’t be the buyer since it lacks the capital and operational stability to run a nationwide network, he said.

An iDEN sale is possible -- the network has been a “complete disaster” for Sprint, Schildkraut said. But the carrier probably won’t be able to carve it out until it finishes its 800 MHz rebanding, he said.

Sprint won’t release Q4 2007 results until Feb. 28, a month after Verizon and AT&T report their earnings. The delay stems in part from an annual assessment of goodwill recorded on financial statements, a Sprint spokeswoman said. “Given current market conditions, particularly the recent decrease in the company’s stock price, Sprint Nextel could determine that it will record a non-cash impairment charge related to goodwill in the fourth quarter,” the carrier said. The charge won’t affect cash balance or future cash flows, it said. Goodwill is the amount a company paid for acquisitions minus their actual value. In other words, said Nelson, Sprint is planning to report “how much it overpaid for Nextel.”