Update: Sprint to lay off 8,000 by April

Wireless carrier expects to save $1.2 billion

Sprint Nextel Corp. today said that it will lay off about 8,000 workers by April within "all levels" of the company.

The reductions should reduce labor costs by $1.2 billion, the company said. About 850 of the layoffs are expected to be eliminated through a voluntary separation plan begun last year. The company employs a total of 56,000 workers.

The company posted a net loss of $326 million in the third quarter of 2008 and a net loss of nearly $1.2 billion for the first three quarters of 2008. Sprint Nextel, which plans to release its fourth-quarter numbers on Feb. 19, lost 3.5 million mobile-phone customers between the third quarter of 2007 and the third quarter of 2008.

CEO Dan Hesse said the reductions were necessary, even though the carrier has made improvements in customer service that have resulted in higher satisfaction ratings in customer surveys. Head-count reductions in customer-care functions will be less than those in groups that don't interact with customers, he added.

The carrier also said it will suspend the 401(k) matches for workers for 2009 and extend a freeze on annual salary increases started in 2008 through 2009. A tuition-reimbursement program was also suspended.

Sprint has about 51 million customers and is the third-largest wireless and wired carrier in the U.S.

Later, Sprint spokesman James Fisher confirmed earlier reports that Kathy Walker, Sprint's chief network officer, will leave Sprint at the end of March since her position was eliminated as part of today's layoff news. He said that Walker and Steve Elfman, the senior vice president of network operations, will be working on a management plan for networks and IT in coming weeks. "We are committed to maintaining the high quality of our networks," Fisher added.

Gartner Inc. analyst Phillip Redman said Sprint has been on a downward "spiral for years," adding that integrating Nextel was a major cause. But the biggest cause is that Sprint has struggled to find a strategy that differentiates it from competitors.

The "desire to be all things to all people has caused much of its problems as competitors have pulled ahead with stronger and broader offerings," Redman said. "Sprint needs to define its strength in the market, focus on those customers and improve its service. Unfortunately as it turns down call centers, lays off people and continually reorganizes, it [falls] further behind."

Problems with Sprint's financial numbers started years ago, and the poor global economy is "keeping Sprint down," despite improvements in the first half of 2008, said Jeffrey Kagan, an independent analyst. Hesse was hired more than a year ago, and a strong focus on customer service to prevent subscribers from defecting seemed to be working, he added.

Sprint's layoff plans follow those of "many other companies" announcing job cuts, Kagan said. "Is this a Sprint problem, or is this larger?" he asked. "The question is, if the economy recovered tomorrow, would Sprint?"

Kagan said a quick economic recovery would still mean that Sprint would "continue to suffer."

Hesse said Sprint has benefited not only from better customer service, but with the success of its 3G network, which he noted was named the victor over other carriers in various metrics, according to a nationwide test by Gizmodo. Also, he said that new smart phones using Sprint service will help, including the Samsung Instinct; the BlackBerry Curve, which launched in 2008; and the Palm Pre, which was announced by Palm Inc. earlier this month and is expected to ship by midyear.

Kagan said a "single handset ... will not repair the company," but he added that Sprint continues to offer "good quality of service and good handsets ... and continues to repair their weak links. Unfortunately, the economy confuses the issue and may continue to do so for the next few years."

Fisher would not comment on reports that Sprint could outsource its network and IT management functions, resulting in more layoffs, saying the company would only comment on what was announced today.

Melanie Posey, an analyst at IDC, said Sprint's layoffs are obviously related to the economy, but added, "the main issue with Sprint is overall company performance." She said the company has been losing wireless subscribers since before the economic downturn began on both the Nextel network and on Sprint's CDMA network.

While poor customer service and the lack of exciting phones has hurt Sprint, Posey said the carrier's exclusive deal with the Palm Pre could help. She said Sprint's involvement with providing spectrum for the Clearwire WiMax joint venture "may bear fruit at some point" but she added that the success of that network depends on how long it takes to build it and how well the venture partners work together.

Several forum postings on SprintUsers.com in reaction to the Sprint layoffs bemoaned the bad economy in general, while one posting said Sprint has improved customer service. Others however, ridiculed Sprint's claim that customer service has improved.

One post, from KTee, summarized the feelings regarding layoffs in general: "I really hate to hear about Sprint eliminating 8000 jobs. That means 8,000 families will be affected. I hope '09 brings some changes for the better for our economy."

Information from the IDG News Service was included in this report.

Copyright © 2009 IDG Communications, Inc.

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