As yet another sign that beleaguered wireless carrier Sprint (NYSE:S) is in desperate need of a change, the company said last week that it will cut expenses by $2 billion to $2.5 billion over the next six months.
According to The Wall Street Journal, that means the carrier will cut jobs and will impose a hiring freeze as well. The cuts come nearly a year after Sprint eliminated about 2,000 of its positions. Sprint previously cut about $1.5 billion in expenses over a 12-month period, which means the current belt-tightening is much more severe than before.
Why is Sprint doing this?
The spending and job cuts come as Sprint is suffering from several years of subscriber losses, expensive promotions, and falling revenue.
In fiscal Q1 2016, the carrier's revenue fell 9% year over year to about $8 billion, and $6.6 billion of that figure came from its wireless phone business -- which was down 8% year over year.
Those drops were precipitated by massive subscriber losses that eventually pushed the carrier down to 57.7 million subscribers, making it the fourth largest U.S. carrier now, behind T-Mobile's 58.9 million subscribers.
To fix falling subscriber numbers, Sprint launched an aggressive campaign to lure Verizon and AT&T subscribers to its network, by literally cutting their monthly plan prices in half if they switched. That helped attract 1.2 million subscribers in the fiscal fourth quarter 2015, but it also cost the company about $914 million the same quarter. (NYSE:T)
While Sprint has managed to bring its subscriber losses somewhat under control, the carrier can no longer shell out large amounts of money to do so.
According to WSJ, Sprint can't just borrow more money from its parent company, Softbank, because the Japan-based company has specific deals with Japanese banks preventing it from spending more money on Sprint. That means the carrier is essentially on its own to fix its current money problems.
That's why Sprint is looking to job cuts and spending cuts, but it's also looking for new ways to generate more revenue from its customers to help turn things around. The carrier showed its willingness to do so last week when it announced it will increase the cost of its unlimited talk, text, and data plans from $60 per month to $70. The price increase affects only new customers and should help the carrier bring in more average revenue per user, which fell from $63.59 to $61.67 over the past year.
Between the cuts and new pricing plans, the carrier is making moves to try the bring the company back to annual profitability, something Sprint hasn't experienced since 2006. No one likes to see a company have to cut jobs to bring it back on the right financial track, and it's likely Sprint still has a long road ahead. But these changes will hopefully help the company burn through less cash, while bringing in more revenue at the same time -- and eventually give Sprint a fighting chance in the wireless industry.
Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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