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Sprint’s CFO Robbiati Says Cost Structure Too Bloated

October 9, 2015 - Written By Cory McNutt

Sprint is in the news once again as the fourth largest network in the US struggles to increase its profits with a network that needs a major overhaul to be competitive with Verizon, AT&T and T-Mobile.  Fortunately, for Sprint, their controlling shareholder from Japan, Softbank Group Corp. has deep pockets and is willing to invest the money necessary to improve the cash-strapped company.  Chief Financial Officer Tarek Robbiati recently joined Sprint to turn the carrier around to profitability.  He outlined some of the details surrounding his plan by announcing that “Our cost structure is bloated” and he suggested that he would cut 10-percent of operating costs to save $2 billion and another $500 million in unidentified reductions.  He said that even though Sprint was the smallest of the top four carriers in the US that their expenditures were disproportionately large…although he did not disclose how many jobs would be eliminated.

This will be Sprint’s second round of cost-cuts this year in an effort to help the cash-strapped carrier’s finances.  Recently as three weeks ago, Moody’s Investors Service downgraded Sprint’s junk bond credit ratings.  For financial reasons they are skipping the important spectrum auction – spectrum that is needed to improve the quality of their services.  Recent promotional ads have them giving away Apple’s new iPhone and free upgrades to the newest iPhone each year in an attempt to bring in new customers.  There are plenty of disgruntled Verizon and AT&T users that would love an option to move to Sprint, but with their spotty service, it is not worth it to jump to save a few bucks.

Wall Street and investors are painting a bleak outcome for Sprint to return to profitability.  Trying to “simultaneously cut costs, improve the network and gain subscribers is a feat no carrier has ever achieved,” said Cowen & Co. analyst Colby Synesael.  “We’ve seen companies do one or two of these things at once but never all three.  I’m not saying it’s impossible, but they are going somewhere no other company has gone before.”  Sprint claims that their $7.1 billion in capital expenditures was more than 20-percent of las year’s revenues while the industry standard is only 17-percent – this should surprise no one as Sprint has a long way to go to improve and build out their network so it is competitive with the other carriers.

Talks of a merger are also in the works, but analyst Craig Moffett says of Sprint’s actions – “It draws a picture of a company that is playing for time, and trying to conserve cash to make it until a new administration when they can try again to find a merger partner.  There doesn’t seem to be a plan B anymore.”  CFO Robbiati agreed it would be a challenge – “We understand that there first has to be an improvement in operating performance before we can even begin to explore options in M&A.”