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Sprint laying off 6,000 nationwide, scrapping ION service

By DAVID HAYES and SUZANNE KING - The Kansas City Star Date: 10/17/01 15:01

Sprint Corp. said today the company will lay off 6,000 employees, including 3,000 in Kansas City, as the company scraps its ION high-speed Internet service and reacts to the weakened economy.

William T. Esrey, chief executive of the Westwood-based company, said in an interview with The Kansas City Star that the job cuts would be deepest in Sprint's long-distance and local service operations. However, Esrey said, 600 to 700 employees will be laid off in Sprint's corporate headquarters, and the cuts will reach into upper management.

Sprint's global markets group, which includes most of the long-distance, ION and fixed-wireless operations, will be hardest hit. About 4,000 jobs will be eliminated in that group, Esrey said. ION had about 1,700 employees throughout the country and fixed-wireless had about 500 employees.

The cuts, about 6.8 percent of the company's total workforce and about 10 percent of the wireline side of the business, are expected to be completed by the middle of November.

No layoffs at Sprint PCS are planned.

In addition, the company will shed 1,500 contract employees, including an unspecified number of workers in Kansas City.

Esrey said the cuts will save Sprint about $1 billion a year and make the company stronger. Esrey also noted that the layoffs will bring Sprint's total employee base down to 82,000 -- about where the company was 15 months ago.

"We are not going in and pulling in our horns," Esrey said. "We're making this adjustment, and then we're going to move forward very aggressively. And we're doing it out of strength so we remain strong. The worst thing we could do would be not to take this difficult step."

The Sprint layoffs are the latest in a series of job cuts in the telecommunications industry that began early this year. Since Jan. 1, more than 225,000 workers have been laid off from local and long-distance telephone companies and telecommunications equipment manufacturers.

News of the layoffs came this afternoon as the company reported its third-quarter earnings, and announced that Sprint PCS set a record for new subscribers. Sprint PCS added 1.25 million new customers in the third quarter. The company's affiliates added about 384,000 customers.

"That is far beyond what we have done before," Esrey said. "It's far beyond what anybody in the industry has done before."

PCS and its affiliates now have about 14.4 million customers.

Overall, Sprint reported that its FON and PCS divisions met analyst's earlier estimates. Esrey said PCS missed its projections for earnings before taxes and other costs because of acquisition costs from the larger than expected increase in new subscribers.

During the third-quarter, Sprint's FON group reported earnings of 18 cents a share. Last year, the company reported 44 cents during the same period. PCS reported a loss of 29 cents. Last year the division reported a 41 cent loss.

The death of Sprint's ION product, which provided integrated phone and high-speed Internet service over traditional phone lines, has been rumored for months. The company scaled back its plans for ION last year because it said glitches with the service's voice quality were still being worked out.

But in the end, Esrey said, ION was scrapped because of the economic and political climate in the telecommunications industry, not because the technology didn't work.

"Our people have done a super job; they've resolved the technical issues," Esrey said. "The business case does not make sense in current market conditions."

Pricing pressure on traditional high-speed cable and DSL Internet services, as well as in voice telephone service, made it impossible for Sprint to charge enough to cover its ION costs.

In addition, Esrey said, foot-dragging by the local Bell companies that provide the "last-mile" connection to homes and businesses, as well as potential changes in federal regulation, hurt the project.

Esrey said Sprint spent $3 billion over the last four years developing ION. The company will take a $2 billion write-off during the fourth quarter.

Sprint will take an additional $600 million hit from costs related to the layoffs and to move current ION customers onto other services, Esrey said.

In another announcement, Esrey said Sprint would freeze its high-speed "fixed wireless" Internet business. The business supplies about 52,000 customers but is not available in the Kansas City area. Current customers will be retained, Esrey said.

The technology for fixed wireless doesn't make the product feasible yet, Esrey said. Sprint is studying second-generation fixed wireless products, which could make it more viable in the future, he said.

To reach David Hayes, technology writer at The Star, call (816) 234-4904 or send e-mail to dhayes@kcstar.com.

To reach Suzanne King, telecommunications and technology reporter, call (816) 234-4336 or send e-mail to sking@kcstar.com

-- Anonymous, October 17, 2001