Sprint to cut up to $2.5B in costs, which 'inevitably will result in job reductions'

Sprint (NYSE: S) is embarking on a new cost-cutting effort geared toward reducing expenses by as much as $2.5 billion during the next six months. The cuts "inevitably will result in job reductions," Tarek Robbiati, Sprint's new CFO, said in a memo obtained by the Wall Street Journal. Robbiati also noted that Sprint is instituting an external hiring freeze.

It's unclear how many jobs Sprint might cut. During the first nine months of 2014, Sprint cut around 5,000 employees. In November last year, the carrier it would cut another 2,000 jobs. The WSJ noted Sprint employed around 31,000 people at the end of March of this year.

"We must change our cost structure so we can fuel our growth and operate more efficiently," Sprint said, according to Bloomberg. "It is likely that some jobs will be impacted but it's premature to discuss the details as we are in the early stages of the process."

Sprint's cost-cutting effort follows the carrier's announcement earlier this week that it would not participate in the FCC's upcoming incentive auction of 600 MHz licensed from TV broadcasters. Analysts are expecting the auction to raise as much as $60 billion in total bids, depending on how much spectrum is released to bidders. Sprint also this week said it would raise the cost of its unlimited data service by $10 per month for new customers, another move likely geared at improving the carrier's finances.  

Analysts at Evercore ISI said that Sprint's reported six-month cost-cutting effort appears driven in "an aggressive time-frame."

"While such a cut is not overly surprising given the company's weaker margins vs. the peers, the amount of the cut is a significant amount," said Wells Fargo analysts in a note to investors following the WSJ's report. "To put it in perspective $2.5B represents 1/3 of the company's operating costs. As we have written in the past, Sprint is very much a 'show me' story. While we view this as a positive step in the right direction, we believe the market will give it very little credit for such a move until we see tangible evidence of costs coming out of the model. There are opportunities on the roaming and special access side that we believe could see some movement in 2016."

According to the WSJ, Robbiati said in the memo that Sprint's finance department must review and approve all expenditures. "The main thing to consider when requesting to spend money is to take an owner's mindset by treating every dollar as if it were your own," he said.

Sprint reported net operating revenues of $8 billion for the second quarter, down 9 percent from a year ago, driven by lower wireless and wireline service revenues and also lower equipment revenues. Sprint also in the second quarter raised its fiscal year 2015 adjusted EBITDA outlook from $6.5 to $6.9 billion to $7.2 to $7.6 billion.

For more:
- see this WSJ article
- see this Bloomberg article

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