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Why Is Cost-Cutting Significant for Sprint?

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Cutting costs to combat losses

Although by subscribers, Sprint (S) remains the fourth-largest player in the US wireless industry, its significant cost-cutting initiatives and its shift away from a traditional subsidy model have contributed to its turnaround efforts.

In fiscal 2016, Sprint realized $2.1 billion worth of cost reductions, of which ~$500 million were realized in fiscal 4Q16, the quarter that ended in March 2017. It eliminated $1.3 billion in costs in fiscal 2015. These cost reductions have been particularly important for Sprint because it continues to generate losses on an adjusted basis.

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As we can see in the chart above, the telecommunications company hasn’t been able to make adjusted profits over the last few quarters. In fiscal 2014, Sprint lost postpaid customers largely due to network quality issues. According to the company, these issues were mostly due to its network upgrade efforts.

However, the company’s customer acquisition and retention improved significantly in its fiscal 2016. Improvements in its network performance positively affected these metrics.

Solid improvement in Sprint’s customer acquisition

Major wireless carriers in the United States will continue to face pressures on their postpaid phone volumes in the upcoming years, given the increasingly competitive market. Sprint’s strong momentum showed no signs of slowing in fiscal 4Q16, with 42,000 postpaid phone net additions, compared to 22,000 in fiscal 4Q15.

In comparison, Verizon (VZ) and AT&T (T) lost 289,000 and 348,000 postpaid phone subscribers, respectively, in 1Q17. Meanwhile, T-Mobile (TMUS) reported 798,000 postpaid phone net additions in 1Q17.

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