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November 9, 2009
Saying the company can’t cut costs fast enough to offset revenue declines, Sprint Nextel Chief Executive Dan Hesse announced plans to eliminate 2,000 to 2,500 jobs nationwide.
Most of the job cuts — expected to save about $350 million in labor costs — will take place by Dec. 31, Hesse said in a memo sent Monday to employees.
It will be the second mass layoff from the company this year and will represent up to 6 percent of its work force.
In January, Sprint said it would cut 8,000 jobs, including about 2,000 in the Kansas City area. That downsizing eliminated 14 percent of its work force in an effort to save about $1.2 billion this year.
The company was unable to specify how many jobs would be lost in this round of cuts among the 7,300 currently employed in the Kansas City area. Most of those employees work at Sprint’s headquarters in Overland Park.
The cuts, coming from one of the area’s largest private-sector employers, are a highly visible indicator of the still-suffering job market.
American Airlines said last month that it would close the aircraft overhaul base at Kansas City International Airport. The base shutdown, scheduled for September, will eliminate about 500 jobs.
Fortunately for the area’s economy, the auto industry has provided a counterpoint to the overall job losses and a local unemployment rate hovering at 9 percent.
The General Motors Fairfax assembly plant has added about 950 jobs, and the Ford plant in Claycomo has held employment steady.
But the loss of more Sprint jobs is especially hurtful to the local economy. They generally are well-paying positions, said Doug Davison, economist with CERI in Johnson County.
And, added Frank Lenk, economist at the Mid-America Regional Council, Sprint and the telecom industry in general “provide jobs that we do for the rest of the country — they bring dollars in — and as an export industry they have a larger impact.”
In his e-mail to employees, Hesse said, “We improved our subscriber performance this past quarter,” but the gains didn’t offset sales losses over the past year.
“We must have a cost structure that ensures we can continue to generate enough cash to continue running a competitive business and remain financially sound,” the three-paragraph note said.
“If we continue to make progress, perhaps this will be the last reduction for some time,” Hesse wrote.
The company has about 42,000 employees systemwide, said company spokeswoman Melinda Tiemeyer.
Two years ago, it had 64,500, with 14,500 in the metro area.
Sprint said last week that it was cutting dozens of positions in its wholesale organization as well as reducing contractors and other outside labor contracts. Those reductions are included in the job-cut numbers announced Monday, the company said.
Tiemeyer said that cuts would occur across all parts of the business and that no final decisions had been made about which individuals would lose their jobs.
She said managers would be notifying affected workers in the next few weeks.
Most full-time employees who are let go will receive severance packages that include eight weeks of pay plus two weeks for each year of service.
Sprint also will pay for job transition advice at three outplacement companies — Drake Beam Morin, Lee Hecht Harrison and Right Management.
Severance and outplacement will cost the company $60 million to $80 million in the fourth quarter, the company said in a news release.
The company lost more than 2 million customers in the 12 months through September. Rivals AT&T and Verizon Wireless gained market share.
In the third quarter alone, Sprint lost 800,000 contract customers and recorded a net loss of $478 million, or 17 cents a share. Sales fell 8.8 percent to $8.04 billion.
Sprint’s job announcement came amid reports Monday that the company is considering an investment of more than $1 billion in its high-speed wireless services expansion with Clearwire Corp.
Sprint and Clearwire declined to comment on the speculation.
On Wall Street, Sprint shares jumped 58 cents, or 20 percent, to $3.43 at the New York Stock Exchange close.
Sprint has been consolidating employees in buildings on its Overland Park campus “to use our buildings more efficiently,” Tiemeyer said.
Embarq and Apria have leased space in vacated Sprint buildings, and Sprint continues to market other available space.
About 6,000 Sprint workers, including 2,000 in the Kansas City area, were “rebadged” in September to Ericsson, the Swedish telecommunications company that signed a contract this year to operate the Sprint network for seven years.
Sprint continues to own and control of the network, and the rebadged employees who now work for Ericsson remained on site at the Sprint campus.
The latest round of Sprint cuts comes on the heels of surveys that have found higher customer satisfaction ratings. PC World Magazine named Sprint as having the most reliable network among the major providers.
Also, the company said in Monday’s news release that it has been able over the last seven quarters to “discontinue the use of 27 call centers as call volume has decreased in the wake of service improvements.”
At the end of the third quarter this year, Sprint had a balance of $5.9 billion in cash, cash equivalents and short-term investments.
The company expects “to continue to generate positive free cash flow during the fourth quarter of 2009,” the news release said.
“The demand for high-end wireless services will do nothing but increase,” said Lenk, the Mid-America Regional Council economist. “As some point, we hope Sprint will be the right size and this (job cutting) will stop. Unfortunately, they haven’t reached that point yet.”
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