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Why Sprint Continues to Focus on Cost-Cutting Measures

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Cost of service and SG&A declines

In the previous parts of this series, we discussed how Sprint (S) managed to gain 173,000 postpaid phone subscribers last quarter. The postpaid phone category is considered to be the most lucrative category for telecom providers. But despite its gains, Sprint’s net operating revenues of $8 billion last quarter were at the same level as one year ago. Its gains in the postpaid phone category were more than offset by a loss of 31,000 tablet subscribers and 331,000 prepaid customers.

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To become profitable, Sprint has been trying to cut costs. Both its costs of services and SG&A (selling, general, and administrative) costs have declined during the past year for Sprint. Costs of services fell due to the shutdown of its WiMax network. SG&A costs fell due to lower spending on marketing and customer care.

Sprint operating expenses

Sprint’s adjusted EBITDA still lags

As a result of the reductions in operating expenses, Sprint’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose from $2.1 billion in fiscal 1Q15 to $2.5 billion in fiscal 1Q16. This improvement is an encouraging sign for Sprint, which has been trying to be a potent competitor in the US telecom industry.

Despite this improvement, however, Sprint’s adjusted EBITDA margin of 31% is still below that of T-Mobile (TMUS), Verizon Communications (VZ), and AT&T (T), which had adjusted EBITDA margins of 36%, 36%, and 41%, respectively.

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