Sprint's Robbiati: We can cut $2B in operating expenses, $500M on equipment spending

Sprint (NYSE: S) CFO Tarek Robbiati said the carrier plans to cut about 10 percent of operating costs to save $2 billion and thinks the company can slash another $500 million in costs related to equipment spending. "Our cost structure is bloated," Robbiati told Bloomberg by phone from Tokyo, where he was meeting with executives from Sprint parent SoftBank.

Tarek Robbiati Sprint CFO


The Sprint finance chief, who officially joined the company in September and replaced Joe Euteneuer, said that capital expenditures at Sprint are disproportionately large by industry standards, according to Bloomberg. Sprint plans to spend $5 billion on capex this fiscal year, which runs until the end of Mach 2016. Some analysts have said that given Sprint's need to densify its network it should be spending more than that.

Sprint plans to cut $2 billion to $2.5 billion in costs over the next six months, which it disclosed last week. The cost-cutting is the second round of cuts in around a year, Bloomberg noted, and is being pushed by CEO Marcelo Claure, and presumably SoftBank, as a necessary move to get Sprint back to profitability. The pressure has been mounting for Sprint as the company burned through $2.2 billion in cash in the second quarter and Moody's Investors Service in September downgraded its credit ratings, saying that the carrier is not doing enough to right itself.

Sprint also recently said it will skip next year's planned incentive auction of 600 MHz broadcast TV spectrum and rely on its existing spectrum reserves to improve its network, especially its 2.5 GHz airwaves. Such a move means Sprint will miss out on grabbing low-band spectrum that could boost its coverage over time, but which would not get deployed until 2019 or so. In the short term it means Sprint will likely save billions of dollars it would have spent in the auction.

Sprint last month made a move to best rival T-Mobile US (NYSE:TMUS) with its own trade-in program for Apple's (NASDAQ: AAPL) newest iPhones and is offering a 16 GB iPhone 6s for $1 per month in leasing payments and a 16 GB iPhone 6s Plus for $5 per month with the trade-in of an iPhone 6 or 6 Plus. The Sprint offer, which will be available for a limited time, came just after T-Mobile said it would offer the 16 GB iPhone 6s for $5 a month and the 16 GB iPhone 6s Plus for $9 per month in device payments when customers trade in their iPhone 6 or iPhone 6 Plus.

While Sprint is looking to boost its subscriber figures and get back on track, according to data compiled by Bloomberg, cutting costs might not be enough, as Wall Street analysts expect Sprint to post losses every quarter until the end of 2018. Sprint is trying to improve its network, cut costs and grow market share all at the same time, which might not be possible, according to some analysts.

"We've seen companies do one or two of these things at once but never all three. I'm not saying it's impossible, but they are going somewhere no other company has gone before," Cowen & Co. analyst Colby Synesael told Bloomberg.

Robbiati said Sprint has around $20 billion in operating expenses and will find $2 billion to cut. Sprint has not said how many jobs it is going to cut as part of the restructuring and Robbiati did not disclose a number. Sprint spokesman David Tovar told Bloomberg the company is not going to make a 10 percent cut across the board to operating expenses and is still looking at specific areas to find savings.

Robbiati said that when taking into account both network investment and capital for devices, Sprint actually had $7.1 billion in capital expenditures last year, which was more than 20 percent of its revenue, while the industry average is closer to 17 percent.

Sprint CEO Marcelo Claure said in mid-September that Sprint's finances will benefit from the leasing companies it is setting up with SoftBank and other companies to finance the leasing of handsets and network gear.  

Sprint is finalizing the structure of the handset leasing vehicle now, and once it's running the firm will lease devices to Sprint at the same price that it is offering the devices to customers. In other words, if Sprint pays Apple $600 or $700 for an iPhone, the leasing company will then give that same amount of money to Sprint and finance the residual value of the device. Claure said Sprint will unveil the leasing vehicle for network gear shortly after the one for handsets is announced.

Claure said Sprint's management team has a "line of sight" to when the company will be generating positive free cash flow, but he declined to set a date publicly.

MoffettNathanson analyst Craig Moffett, who has been consistently skeptical of Sprint's turnaround, does not think the firm has positive momentum. "It draws a picture of a company that is playing for time, and trying to conserve cash to make it until a new administration when they can try again to find a merger partner," he told Bloomberg. "There doesn't seem to be a Plan B anymore." 

Robbiati said Sprint needs to turn around its finances and make difficult cuts if it wants to survive or make any kind of M&A play down the road. "We understand that there first has to be an improvement in operating performance before we can even begin to explore options in M&A," he said.

For more:
- see this Bloomberg article

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