Sprint (NYSE:S) has been bleeding for years in more ways than one. Some cost-cutting is in order, but the dilemma there is that cutting costs always hurts the viability of a turnaround.
In October, the No. 4 domestic wireless carrier outlined a plan to cut up to $2.5 billion in operating expenses, which unfortunately included layoffs and a hiring freeze. That's also partially why Sprint is sitting out of the 2016 spectrum auction (Sprint says it has enough spectrum thanks to its 2012 acquisition of Clearwire). Well, here's another way that Sprint might be able to cut spending.
It's all part of the plan
Re/code reports that Sprint is preparing to overhaul much of its cellular network by moving cellular gear off of leased cellular towers and onto government-owned property. That move could save a lot of money since those sites cost a lot less, and Sprint could begin transitioning equipment this summer.
Sprint also currently relies heavily on network backhaul, where it has to pay its larger rivals to use their network cables. Instead, Sprint will look to transfer data via microwave technology. Using microwaves for backhaul isn't popular stateside, but it does offer better capacity and is more cost efficient in some cases.
Desperate times call for desperate measures
But the challenge is that revamping network infrastructure is a massive project, and almost always entails service disruptions during equipment transitions. In the long term, the goal is an overall improvement in performance and cost structure, but in the short term, disruptions don't help consumer perceptions about the network's performance.
Closest rival T-Mobile (NASDAQ:TMUS) has made incredible progress over the past year with beefing up its network. The Uncarrier expanded its network by 250% in 2015 in terms of geographical coverage, thanks primarily to deployment on low-band 700 MHz spectrum. T-Mobile scooped up all those airwaves in 2014, and promptly got to work utilizing it.
The competition between Sprint and T-Mobile continues to intensify, but T-Mobile now has the upper hand in terms of brand strength and network performance.
This is taking forever
Sprint continues to be a precarious financial position, with nearly $34 billion in long-term debt and capital lease obligations as of last quarter. The interest expense alone on all that debt weighs on results. For instance, last quarter's interest bill of $542 million comprised the vast majority of the $585 million net loss.
It's going to take some time for Sprint to make meaningful progress with the turnaround. But with as long as the turnaround process has endured (Sprint hasn't posted a profit in a decade), investors might lose whatever patience they have left.
Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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