Sprint Corp. is “decommissioning” its current DSL offer for small businesses in 32 markets because of lower than expected sales and high infrastructure and access costs. Those factors delayed profitability, spokeswoman Melinda Tiemeyer said.
In streamlining measures aimed to curb 2003 operating costs, Sprint disclosed Friday it would “decommission” Sprint Business DSL through the Global Markets Group. The action does not affect DSL service through the local telecommunications division, which offers SprintFastConnect in 18 states, the company says.
Telecommunications providers marketing DSL -- an alternative to a T1 connection and other high-speed access platforms -– have suffered major losses during the past two years because of technological and financial barriers. Technology analysts speculate that Sprint may be facing similar challenges marketing DSL to small businesses in Chicago, San Francisco and other U.S. cities outside its local telecommunications division.
“There is a whole bunch of difficulties in turning up DSL, and they create costs,” said Matt Davis, director of The Yankee Group’s Broadband Access Technologies. It is likely Sprint had to “burn too much cash” to reach profitability.”
Discussing the technology’s distance limitations from a customer premise to a Bell central office, Davis added, “You have unmotivated sales channels, and you have technical difficulties …”
Sprint, the No. 3 long-distance carrier, will look to provide small business customers high-speed Internet service through alternative access platforms and through partnerships, depending on the region, Sprint spokeswoman Melinda Tiemeyer said. The company expects to notify its business customers of their options by the end of the week, she added.
Sprint began offering Sprint Business DSL in January to small business customers for $160 a month over a two-year contract. The asymmetrical DSL package supports download speeds up to 8mbps and an upload stream of up to 800kbps.
TeleChoice DSL analyst Pat Hurley said providing small businesses DSL is “not an unfeasible business model” if a carrier can keep provisioning and support costs to a reasonable level while incorporating value-added services such as virtual private networks. He cites Covad Communications, a California-based company that has slashed its operating losses and come closer to reaching cash flow positive after emerging from bankruptcy court earlier this year.
With its attention formally diverted on its defunct ION division -– a unit focused on providing businesses integrated voice and data services -– Sprint may not have had all the resources to support the DSL solutions for small businesses adequately, Hurley said.
As part of the restructuring announced Friday, Sprint also disclosed it would integrate its E/Solutions’ Web hosting unit into Sprint Business while combining E/Solutions’ customer and technical service operations into Network Services.
The restructuring will leave 1,100 people without jobs, representing roughly 1 percent of Sprint’s 80,000-person workforce. Sprint said the personnel reductions would occur during the next several weeks.
Sprint has not disclosed how much money it expects to save on operating costs, nor has the company discussed possible one-time charges associated with the restructuring. The company is expected to discuss the restructuring during its second-quarter conference call scheduled Thursday.
Kaufman Bros. analyst Vik Grover, who maintains a sell recommendation on Sprint, expects the carrier to post EBITDA of $1.1 billion, flat with last year and the prior quarter.
