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Struggling Sprint Nextel to eliminate 8,000 jobs

January 26, 2009

KANSAS CITY, Mo. (AP) – Faced with persistent subscriber losses and questions about its long-term prospects, Sprint Nextel Corp. is slashing its already shrinking work force by 8,000 people as it seeks to cut annual costs by $1.2 billion.

The layoffs, announced Monday, are just the latest attempt by the nation’s third-largest cell phone carrier to right its financial ship in the face of tough competition and a brutal economy. They come slightly more than a year after the company cut 4,000 jobs and closed 125 retail centers as Chief Executive Dan Hesse, then new on the job, aimed to show he was serious about streamlining operations.

Sprint said it expects the latest round of layoffs, which represent a 14 percent reduction of its 56,000 employees, will be largely completed by March 31. The company said it will take a first-quarter charge of more than $300 million for severance and other costs.

About 850 of the layoffs are voluntary, through employees taking buyouts. They will make up about $45 million of the total severance costs, the company said in a securities filing.

In addition to the cuts, Sprint said it will suspend its 401(k) match for the year, extend a freeze on salary increases and suspend a tuition reimbursement program.

“Labor reductions are always the most difficult action to take, but many companies are finding it necessary in this environment,” Hesse said in a news release. “Our commitment to quality will not change.”

Sprint shares rose 3 cents, or 1.2 percent, to close at $2.49 on Monday.

The Overland Park, Kan.-based company has struggled since acquiring Nextel Communications Inc. in 2005. Technical problems, poor efforts to consolidate the two companies and stiff competition for feature-rich phones, such as the Apple Inc. iPhone on AT&T’s service, have led many subscribers to switch.

As of Sept. 30, Sprint had 50.5 million subscribers, down 3.5 million from a year earlier. The falloff contributed to the $1.18 billion net loss that Sprint posted through the first three quarters of 2008.

“Given the current state of operations, (the layoffs were) probably the right thing for them to do,” said analyst Christopher King at Stifel Nicolaus.

He doesn’t see Sprint as a bankruptcy candidate, at least not for two years. “But certainly as you get into 2011, depending on how their operations shake out over the next couple of years, there could potentially be some concerns there,” he said.

Another analyst, John Hodulik at UBS, wrote in a research note Monday that it might be difficult for Sprint to turn the tide of subscriber losses, given that nearly everyone already has a cell phone and few people switch between the major carriers.

The company’s layoff announcement comes a month after AT&T Inc. announced it was cutting its work force by 4 percent, or 12,000 jobs, to deal with the effects of the recession and the continued erosion of its traditional wireline business. However, AT&T’s wireless arm has been gaining subscribers, as have Verizon Wireless and T-Mobile USA.

Sprint Nextel has had some bright spots. It recently announced a new $50 per month unlimited voice and data plan under its Boost prepaid brand, which doesn’t require customers to be tied to contracts. Analysts expect it to attract many people who can’t qualify for or don’t want to sign two-year contracts.

Also, Sprint will soon be the exclusive seller of the Palm Pre smart phone, a touch-screen device expected to rival the iPhone. The Pre is set to debut in the second half of this year.

Sprint spokesman James Fisher said the company hasn’t determined how the newest layoffs will be divided between divisions or geographic locations, including suburban Kansas City, where it is the area’s largest private employer.

But he said the company will likely avoid significant reductions in its customer service and network quality divisions, where Sprint has tried to improve in recent years.

One executive-level casualty is Kathy Walker, the company’s chief information and network officer, who is leaving as of March 31.

Jeff Kagan, an Atlanta-based wireless analyst, said in a report that while Sprint’s cost-cutting efforts are notable, they can’t save the company on their own. He discounted the effect of the economy, since Verizon Wireless and AT&T have continued to do well.

“If the economy recovered tomorrow I think Sprint would continue to suffer,” Kagan wrote.

Sprint also announced Monday it will release its fourth-quarter earnings on Feb. 19, more than a week earlier than originally scheduled.

Copyright 2009 The Associated Press.

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