Sprint to cut 2,000 jobs, postpaid subscriber losses slow

Sprint (NYSE: S) reported a wider loss and slightly less revenue than analysts had expected, and the carrier said it plans to cut another 2,000 jobs. However, the carrier said that its recent pricing overhaul has generated interest, and that its results during September indicate it is beginning to reverse years of subscriber losses.

Sprint reported net operating revenues of $8.5 billion and an operating loss of $192 million, both of which came in below Wall Street expectations. In order to address the situation, Sprint said it is embarking on a cost-cutting plan that it hopes will result in $1.5 billion in cost reductions--that effort will include cutting around 2,000 additional positions. Those cuts are in addition to the 5,000 jobs Sprint cut from January through mid-September.

And the job cuts will stretch across the company, CEO Marcelo Claure promised: "We've decided to make some leadership changes," Claure told Reuters, pointing to the recent appointment of SoftBank executive Junichi Miyakawa as Sprint's new technical chief operating officer. "More changes are coming," Claure added.

But Sprint said it continues to hire in select areas. For example, the company said it will open a customer care center in its Kansas City headquarters to target its high-value customers, and is hiring 200 call center works to staff the facility.

As for its subscriber performance in the third quarter, Sprint said it lost 336,000 total retail postpaid subscribers during the period, the company's 11th straight quarter of postpaid subscriber declines. However, Sprint reported adding a total of 484,000 net subscribers in the quarter, thanks to the addition of fully 840,000 wholesale and affiliate subscribers. Sprint CFO Joe Euteneuer said that the impressive performance of Sprint's wholesale group was due to a mix of M2M and MVNO customer additions, but declined to provide details.

Although Sprint continues to post subscriber losses, the company said its recent pricing changes have helped. Since Claure took the Sprint helm from Dan Hesse on Aug. 11, he has introduced shared data plans that offer double the data allotments of similar plans from Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T). He has also introduced individual unlimited data plans at prices far below what rival T-Mobile US (NYSE:TMUS) charges.

As a result of the new plans, Sprint said its postpaid phone gross additions grew 37 percent month-over-month in September, and its postpaid phone net losses slowed by nearly 60 percent in September. Sprint also said its postpaid upgrade rate was 8 percent in the third quarter, and that figure will grow to as much as 12 percent in the fourth quarter.

During the carrier's quarterly conference call with investors, Claure acknowledged that Sprint is facing "significant challenges." But he said that "we're taking the right steps to address these challenges."

Here are some key statistics from Sprint's third quarter earnings report:

Subscribers: Sprint reported 590,000 net additions to its "Sprint platform," which includes its CDMA and LTE networks. That figure includes the loss of 272,000 postpaid customers and the addition of 35,000 prepaid customers (which Sprint said was due to successes at its Boost Mobile brand) and 827,000 wholesale and affiliate customers. The carrier reported postpaid tablet net additions of 261,000 in the quarter.

In the same quarter a year ago, Sprint lost 360,000 Sprint platform postpaid customers, which was offset by the addition of 84,000 prepaid customers and 181,000 wholesale and affiliate customers.

Sprint ended the third quarter with 55 million connections.

Handset financing and leasing: Sprint said around 27 percent of its customers elected to sign up for its handset leasing and financing programs during the full quarter. Sprint launched a handset leasing program with the introduction of the new iPhone 6 and 6 Plus in September--customers' monthly payments under the leasing option are lower than under Sprint's Easy Pay financing program. The carrier said the rate of customers choosing the programs picked up significantly toward the end of the third quarter after it introduced its leasing program; Sprint said just 20 percent of its customers choose to use its handset financing program during the month of August.

Interestingly, CEO Claure said Sprint next year might choose to eliminate its phone subsidies, like T-Mobile has done, and only offer phone leasing and financing plans. Euteneuer said Sprint is considering the move but has made no concrete decision.

Network: Sprint said its 4G LTE network now covers a total of 260 million people across 500 U.S. cities. The company also said it is nearing its goal of covering 100 million people with its 2.5 GHz LTE network; the carrier said it currently covers 92 million people with its 2.5 GHz LTE network.

As for Sprint's 800 MHz LTE buildout, the carrier said it now covers 50 percent of its total LTE footprint with 800 MHz LTE and will complete its 800 MHz LTE buildout next year.

Capex: Sprint said it lowered its capital expense forecast for the year to just below $6 billion from its previous forecast of $8 billion that it made at the beginning of this year.

Euteneuer explained that Sprint lowered its network capex forecast for this year because its LTE network buildout eliminated its need to invest in CDMA 3G network capacity. Further, he said Sprint's parent SoftBank has helped reduce the cost of its network equipment due to economies of scale.

Financials: Sprint's operating loss in the third quarter was $192 million, lower than the $398 million it posted in the year-ago quarter. Overall, Sprint said its revenue increased 9.5 percent to $8.49 billion.

The results were such that Sprint parent SoftBank reduced its operating profit forecast to $7.9 billion (900 billion yen) for the fiscal year ending in March 2015, down from a previous forecast of $8.8 billion.

"Sprint's battle will be long and tough, and it's not something that can be fixed in a short time," SoftBank CEO Masayoshi Son said, according to Reuters.

As Bloomberg pointed out, Sprint reduced its adjusted profit forecast for year by $1 billion to no more than $5.9 billion. Sprint executives said the carrier's primary goal is to increase the number of its postpaid net customer additions, and that its financials could be lower in the coming quarters as it works to reach that goal.

Analysts at New Street Research noted that "Sprint's turn-around will clearly come at a higher cost than investors realized." They added: "Sprint needs to do something transformative, in order to be the cost leader given their scale disadvantage in a scale driven industry. This isn't enough, but Claure is only 85 days in."

ARPU: Sprint said its average revenue per postpaid connection on its Sprint platform declined to $60.58 in the quarter, from $64.28 in the same quarter a year ago.

Churn: Sprint said postpaid churn on its Sprint platform rose to 2.18 percent, from 1.99 percent in the year-ago quarter.

For more:
- see this release
- see these two Reuters articles
- see this Bloomberg article
- see this WSJ article (sub. req.)
- see this GigaOM article

Special Report: Wireless in the third quarter of 2014

Related Articles:
All eyes on CEO Claure's vision ahead of Sprint's Q3 earnings
T-Mobile's Legere: If customers try Sprint and don't like it, they'll leave and never come back
Sprint names SoftBank executive Miyakawa as its new network chief
Sprint slashes another 452 jobs at company headquarters, more to come
Analysts: Verizon likely to lead in Q3 subscriber additions while Sprint struggles to regain momentum
Sprint tweaks 2.5 GHz LTE deployment strategy to target congested parts of network

Article updated Nov. 4 with additional commentary