Sprint Discloses $2.5B Cost Reduction, Potential Job Cuts

Sprint announced its decision to reduce costs between $2 billion to $2.5 billion and external hiring freeze over the next six months. There is also a possibility that the company would cut jobs as part of its cost reduction.

In a memo to employees this week, Sprint Chief Financial Officer Tarek Robbiati said the cost reduction will “inevitably” result in job cuts. However, he did not specify how many employees will be affected by the workforce reduction. Sprint has 31,000 employees as of the end of March.

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“The main thing to consider when requesting to spend money is to take the owner’s mindset by treating every dollar as if it were your own,” wrote Mr. Robbiati in the memo.

Sprint cost reduction target was considered ambitious

Market observers noted that Sprint made its decision after realizing that it is spending too much on its turnaround strategy including acquiring customers and rebuilding its network.

They noted that Sprint’s cost reduction target over the next six months was ambitious given the fact that its operating expense during the three months ended June 30 was $7.5 billion. The company previously reported that it was able to reduce its expenses by $1.5 billion over the past 12 months.

According to Sprint, it has the highest cost as a percentage of among the major wireless providers in the United States. The company emphasized that the reduction is important to remain competitive.

Sprint failed to keep its lucrative handset customers for years. As a result, the company fell to the fourth position among the wireless provider in the country. It has approximately 58 million customers by the end its fiscal first quarter.

Low cost structure is critical for Sprint to achieve long-term growth

Sprint CEO Marcelo Claure’s turnaround strategy for the company includes cost reduction, competitive pricing and customers service as well as the improvement of its network quality.

Mr. Robbiati emphasized that the cost reduction is now critical for Sprint to succeed. According to him, “I realize this may be very unsettling and that you have been hearing similar messages for yearsBut it has never been as critical as it is now. Without achieving a low cost structure, we can’t invest in other areas, such as our network, that are critical to our long-term success.”

Sprint spokesman Dave Tovar shared the same view. He said, “In order to be successful, we must change our cost structure so we can fuel our growth and operate more efficiently. We have begun an effort to significantly take costs out of the business so the transformation of the company will be sustainable for the long-term.”