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Sprint’s Costs May Reduce by $1.5 Billion in 2015

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Mar. 27 2015, Updated 11:05 a.m. ET

Sprint’s costs in 2015

In the last part of this series, we learned about the principal operating costs of Sprint’s (S) wireless division in fiscal 3Q14. The principal operating costs included the cost of service, cost of product, and SG&A (selling, general, and administrative expenses). During fiscal 3Q14, only Sprint’s cost of service declined YoY (year-over-year) among these three costs.

Earlier in this series, we mentioned that the company’s revenue decreased during 2014. The decreased revenue was led by customer losses. Sprint’s customers were switching to other national wireless carriers like Verizon (VZ), AT&T (T), and T-Mobile (TMUS). The company is focused on reducing costs across the board to manage overall profitability. Sprint set up a target of cutting $1.5 billion in overall costs in 2015.

Now, we’ll look at the key areas that the telecom is focusing on to reduce costs.

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Cost of service

Sprint expects its cost of service to decline due to its network upgrades as well as more efficient use of its spectrum portfolio. The company believes that these factors will help it reduce third-party carrier charges like roaming expenses. It also expects to reduce cell site or tower costs.

Cost of product

Sprint expects to reduce its cost of product by buying equipment—like phones and tablets—at lower prices from distributors. The company plans to choose distributors optimally to achieve this.

SG&A expenses

The company streamlined its workforce to manage SG&A expenses. Sprint is also working to improve its distribution channels. The company expects to reduce its information technology and customer care costs.

If you want to get diversified exposure to Sprint, you can invest in the iShares U.S. Telecommunications ETF (IYZ). IYZ held ~4.6% in the telecom on March 5, 2015.

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