Analyst expects Sprint layoffs next month

Mon, 12/08/2008 - 7:35am
Evan Koblentz, Wireless Week

Financially troubled wireless carrier Sprint Nextel may lay off 10 percent of its 57,000 employees next month, as not enough people are accepting the company’s voluntary package, Pali Research analyst Walter Piecyk says.

The move will help Sprint to “adjust its bloated cost structure,” Piecyk wrote in his blog this morning. “This will likely result in a charge to Q1 results, but we believe it will better position the company to exceed what we believe are overly dire 2009 and 2010 EBITDA estimates by our peers. Our views are in part based on recent conversations with Sprint CFO Bob Brust,” he wrote.

“We also believe CEO Dan Hesse is preparing to take more dramatic actions to stimulate gross subscriber additions, and we do not believe that price cuts are off the table.”

Price cuts make sense because flat-rate carriers are responsible for much of Sprint’s churn, Piecyk said in a follow-up interview today. However, Sprint is not heading for a bankruptcy anytime soon, he added. “They’ve got a couple of years to figure this out,” he said.

Sprint spokesman James Fisher noted that cutbacks are only the analyst’s opinion. “We have not even reached a final 2009 plan at this point. So we’re not at a point where we’re making decisions about what our labor needs will be next year,” he said. “We’re putting a lot of effort into it just because of the whole economic environment … we’ll look at everything that’s going to be on the table.”

Piecyk also blogged about the recent departure of Sprint’s CDMA chief. “We believe the company needs to quickly find a replacement for former head of CDMA, John Garcia, to help CEO Dan Hesse fully develop a marketing strategy. For the moment, John Garcia’s departure places the responsibility to grow gross additions squarely on Hesse’s shoulders. That would appear to set him up to emerge as the hero or the latest scapegoat. Investors should be satisfied that the CEO is taking personal responsibility for gross additions but should also look for him to find strong help to achieve that goal.”

AT&T laid off 12,000 people last week (story here), but the focus was on its wireline business.

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