Sprint shrinking operations to meet shrinking customer base

Sprint’s massive customer losses are starting to drag on its network operations. The struggling operator announced today plans to eliminate 8,000 positions in its ranks—most by the end of the current quarter--in an effort to trim $1.2 billion in internal and external labor costs.

Sprint said the job cuts were intended to make its cost structure more competitive in the industry and keep the company fiscally secure in the current economic downturn. "Labor reductions are always the most difficult action to take, but many companies are finding it necessary in this environment," Sprint Chief Executive Officer Dan Hesse said in a statement.

While many companies are trying to cut costs during the recession, wireless is one of the few areas where most operators don’t appear to be struggling. Sprint has the double misfortune of facing not only a bad economic climate but the task of simultaneously trying to rebuild its reputation and business among customers, said Jeff Kagan, an independent wireless analyst.

“We have seen wireless competitors like Verizon and AT&T continue to do pretty well during this weak economy, but Sprint has continued to lose customers and struggle,” Kagan said. “The question is, if the economy recovered tomorrow, would Sprint? If the economy recovered tomorrow, I think Sprint would continue to suffer. The next question is, would Sprint begin its recovery at that point, or would it continue to struggle? That is the question we don't have an answer for yet.”

In the third quarter, Sprint reported net customer losses of 1.3 million, adding to the tally of customers fleeing for other operators. Sprint’s customer base has shrunk 6.3% in the last year, while the industry overall has grown 7%. Meanwhile Sprint’s operational costs have remained fixed as it maintains a network, sales and customer care operation intended to support a much larger customer base. Bernstein Research senior analyst Craig Moffett had predicted that Sprint would face enormous cost pressures by continuing to focus on churn rather than growth, which could impede its future growth when Sprint finishes repairing itself: As gross additions fall, sales-per-square-foot of retail space fall, which leads to retail store closures, which in turn leads to even fewer gross additions, etc.

Those operational pressures are coming to light with today’s announcement, Moffett said. While this is the third consecutive January Sprint has announced layoffs, the number of new job cuts have been increasing, reflecting the increasing rate of subscriber losses, Moffett said.