Sunday, January 20, 2008

Sprint: Massive Cutbacks and Major Stock Fall

Sprint Nextel Corp., the third-biggest wireless carrier in the U.S., on Friday saw its shares suffer their biggest fall in more than 25 years after it lost more subscribers than analysts estimated and announced plans to fire 4,000 workers.

Sprint plunged $2.87, or 25%, the most since at least July 1980, to $8.70. The company said about 683,000 contract customers left last quarter, more than the 200,000 estimate of Robert W. Baird & Co. analyst William Power.

The subscriber slump brings defections to 1.2 million in 2007, prompting Chief Executive Daniel Hesse to get rid of about one-fifth of Sprint's retail locations. Hesse replaced CEO Gary Forsee in December, taking charge of a company that has struggled to absorb the $36-billion purchase of Nextel and offer phones to compete with Apple Inc.'s iPhone, which is serviced by AT&T Inc.

"The subscriber numbers look pretty ugly," Power said. "It's not getting better."

Before the Nextel acquisition in 2005, the companies' combined market value was about $70 billion. Today, Reston, Va.-based Sprint is worth about $24 billion, a drop of almost two-thirds.

Larger rivals AT&T and Verizon Communications Inc., the co-owner of Verizon Wireless, each saw their shares fall more than 3%.

"There's just fear that telecom companies are not going to have good numbers," said Todd Rosenbluth, an equity analyst at Standard & Poor's.

Sprint's staff reductions, about 6.7% of the workforce, will cost $200 million. They will help save as much as $800 million a year, the company said. The job cuts, which will happen in the first half of the year, will apply to employees across the board, including managers.

Sprint also plans to close about 125 company-owned stores and get rid of 4,000 resellers. The company said it hadn't determined how much the closings would cost.

Sprint had about 54 million customers at the end of the year. The rate of contract customer turnover, or churn, was 2.3%, the same as in the previous quarter. The company will report full results Feb. 28.

Fitch Ratings cut the company's debt rating one level to "BBB-," the lowest above junk status, on the news. The firm said Sprint might have trouble winning "prime" subscribers amid growing competition and slowing economic growth.

Sprint said the number of customers disconnected for nonpayment rose last quarter.

AT&T and Verizon Wireless have lured Sprint's subscribers with better call quality and popular handsets such as the iPhone and LG Electronics Inc.'s Chocolate.

Both companies beat Sprint last year in a J.D. Power & Associates Inc. study on dropped calls, interference and failed connections.

Source [LA Times]

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