Sprint Customer Losses Prompt Layoffs

The company plans to pare 4,000 employees and close stores to offset step losses in its prepaid market. 

Count America's struggling No. 3 wireless carrier Sprint Nextel as the latest victim of the credit crunch.

Citing fourth-quarter losses among customers who do not have contracts, Sprint officials said Jan. 18 that they plan to lay off more than 4,000 employees.

The prepaid market that Sprint targets is particularly susceptible to downturns in the economy, such as the collapse of the subprime mortgage market. While Sprint reported a fourth-quarter net gain of 500,000 subscribers through its wholesale channels, the company said those gains were offset by net losses of 683,000 post-paid subscribers and 202,000 traditional pre-paid users.

Sprint officials said they anticipate "continued downward pressure on subscriber trends, revenues and profitability" in 2008.

In addition to the layoffs, Sprint said it planned to eliminate more than 4,000 third-party distribution points and close 125 company stores. Sprint currently has about 20,000 distribution points and almost 1,400 company stores.

The company expects the layoffs and store closings to reduce labor costs by $700 million to $800 million by the end of the year. Sprint expects the layoffs -- which will be targeted at both management and non-management positions -- to be completed in the first half of 2008. The company plans a first-quarter charge to cover the severance costs of the layoffs.

After more than a year of financial losses and a loss of market share, Sprint hired CEO Dan Hesse in December to replace Gary Forsee. The layoffs are one of Hesse's first moves to pull the company out of the red ink.

But many analysts think Hesse will have to do more than just cut costs, including finalizing the consolidation of the Sprint and Nextel networks. Since Sprint acquired Nextel in 2005, the combined company has seen an exodus of former Nextel customers.

Sprint must also decide the fate of the company's ambitious WiMax plans, according to analysts. Under Forsee, Sprint said it planned to spend as much as $5 billion to build the commercially unproven network. Since Hesse took over, Sprint has said it is committed to the WiMax plan but doubts remain on Wall Street.