Sprint Corp is firing 9 percent of its US mobile-phone unit employees to cut costs as customer growth slows and investors worry that the third-largest long-distance phone company will struggle to reduce debt.
Sprint PCS Group will cut 3,000 jobs and shut five customer service centers to trim annual costs by US$60 million, spokesman Dan Wilinsky said.
Shares of the fourth-biggest US mobile-phone company fell as much as 20 percent to a three-year low. Sprint Corp stock slipped as much as 9.4 percent.
Sprint rival Qwest Communications International Inc, facing questions about how it accounts for certain contracts, borrowed US$4 billion from banks yesterday to fund day-to-day operations after the company couldn't get loans from money-market investors.
Sprint may follow suit, some analysts said.
"It's a very difficult market, and that can have an impact on the company's final flexibility," said Maria Lemos, a Standard & Poor's analyst. The "BBB+" long-term credit rating of Sprint, which had US$20.9 billion in debt at year-end, "is under pressure and we're looking very closely to see if it's going be maintained."
At year-end, Sprint had outstanding about US$3 billion in commercial paper backed up by US$5 billion in unused bank credit lines, Sprint spokesman Mark Bonavia said. The backup lines were arranged by Citigroup Inc and JP Morgan Chase & Co Companies typically use commercial paper to fund daily operations.
"We are finding liquidity and placing our paper," Bonavia said, declining further comment.
Sprint PCS will have a first-quarter expense of US$25 million for the firings, which affect offices in Atlanta; Tallahassee and Jacksonville, Florida; Lawrence, Kansas; and Irvine, California.
The Kansas-based Sprint's fin-ancing arm, Sprint Capital Corp, offered to pay 2.5 percent to borrow for four days, compared with 2.25 percent for similarly rated General Mills Inc.
Sprint and General Mills have "A2" short-term debt ratings from Standard & Poor's and "P2" grades from Moody's Investors Service.
Investors have become more skittish about investing in some short-term corporate securities since Enron Corp collapsed and Tyco International Ltd tapped bank lines. Dipping into credit lines sends a message that a company's financing options are limited, investors say.
The "BBB+" long-term credit rating of Sprint, which had US$20.9 billion in debt at year-end, "is under pressure and we're looking very closely to see if it's going be maintained," S&P's Lemos said.
Sprint has too much debt for a company with its ratings, though the company has the ability to lower borrowings by increasing cash flow at the wireless unit, Lemos said.
Investors are concerned about the ability of big long-distance phone providers, struggling with price competition and falling demand, to borrow in the short-term debt markets, said RBC Capital Markets analyst David Bank.
"Whether or not it's warranted, investor sentiment is tainted right now," said Bank, who rates Sprint's long-distance shares "sector perform" and doesn't own them.
Sprint Capital's 7 5/8 percent coupon notes maturing in 2011 dropped to US$924 per US$1,000 face value from US$930 yesterday. That pushed up the yield to 8.87 percent from 8.77 percent. The spread to US Treasuries, widened about 10 basis points to 400 basis points, traders said.
Sprint PCS shares fell US$0.93 to US$9.27 after dropping 20 percent to US$8.21, a level last reached in December 1998. Shares of Sprint PCS and other wireless operators have been hurt this year by concerns the US mobile-phone market is running out of room to grow after years of rising demand. Verizon Wireless Inc is the biggest US mobile-phone company.
Sprint PCS on Feb. 4 reported a fourth-quarter loss of US$328 million and said it expects to add 3 million customers this year, down from an earlier forecast of 3.6 million to 3.7 million.
Sprint PCS added 4 million new customers last year.
Qualcomm Inc shares fell US$2.65, or 6.6 percent, to US$37.40.
Sprint PCS is indirectly one of the San Diego-based company's biggest customers, as its wireless network and phones run on Qualcomm chips and patents.
Shares of Sprint's long-distance business fell US$0.50 to US$13.30.
The stock touched US$12.51, the lowest price since 1995.
About 20.3 million shares were traded, more than four times the three-month daily average.
Sprint trails AT&T Corp and WorldCom Inc in the US long-distance market.
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