How and why T-Mobile is cutting 5,000 jobs

T-Mobile disclosed it will cut around 5,000 positions – 7% of its workforce – in a move designed to reduce costs, simplify its management structure and improve profits.

"While we believe some could read this as a negative for T-Mobile, as it may imply something may be going wrong, we do not believe that to be true," wrote the financial analysts at KeyBanc Capital Markets in a note to investors following T-Mobile's filing. They argued the move would help T-Mobile further improve its earnings and free cash flow. "Given the [job] reduction primarily impacts back office positions, we would expect [new customer] volumes to not be negatively impacted, and we believe volumes can accelerate going forward. We believe this will continue the growth trajectory while improving operating efficiencies that are already benefiting from [merger] synergies."

T-Mobile isn't the only company in the wireless sector cutting jobs. AT&T, Verizon, Crown Castle, Ericsson, Airspan, Cambium Networks, Cisco Systems and Dish Network are among those cutting back. Moreover, both AT&T and Verizon have recently embarked on new cost-cutting programs.

T-Mobile's layoffs also come roughly three years after the close of the company's merger with Sprint. Company officials at the time of the merger promised the two companies would employ more workers combined than as separate companies. But, as noted by Geekwire, company officials later clarified that was not a promise to employ more people overall but a promise to employ "more people than the combined total of their separate workforces in a future scenario in which they didn't merge."

Indeed, as Light Reading has reported, T-Mobile has been steadily reducing the number of its employees since it merged with Sprint in 2020. For example, earlier this year T-Mobile laid off an unspecified number of employees as it worked to overhaul its retail sales strategy.

The letter

T-Mobile CEO Mike Sievert argued the new job cuts would better position T-Mobile for the future.

"What it takes to attract and retain customers is materially more expensive than it was just a few quarters ago," he wrote in a letter to T-Mobile employees. "We've been out-running this trend by accelerating merger synergies, and building our high-speed Internet business faster than expected, and out-performing in a few other areas. However, it is clear that doing everything we are doing and just doing it faster is not enough to deliver on these changing customer expectations going forward."

Continued Sievert: "Today's changes are all about getting us efficiently focused on a finite set of winning strategies, so that we can continue to out-pace our competitors and have the financial capability to deliver a differentiated network and customer experience to a continually growing customer base, while simultaneously meeting our obligations to our shareholders."

Sievert wrote that the cuts would primarily affect corporate and back-office roles, alongside some technology positions. He wrote that the company's retail and consumer care employees would not be affected. In terms of structure, Sievert explained that the cuts would target duplicative roles, and in some cases would focus on implementing a more centralized strategy. He added that T-Mobile would reduce its reliance on external workers.

Sievert noted that T-Mobile would provide "competitive" severance payments and an additional 60 days minimum of transition leave.

"After this process is complete, I do not envision any additional widespread company reductions again in the foreseeable future," he wrote.

The financials

T-Mobile's cuts are one of many efforts the company has taken to shore up its financials amid a slowdown in industry growth and increasing competition.

For example, in recent weeks T-Mobile has looked to increase its average revenues per user (ARPU) with pricier plans, to squeeze more revenues from existing customers and to capture more customers.

Broadly, financial analysts have cheered T-Mobile's progress in the market. Indeed, the company continues to outpace its rivals in customer gains: The operator added 760,000 new postpaid phone customers in the second quarter, whereas Verizon gained around 8,000 and AT&T gained around 326,000.

But analysts have been worrying about T-Mobile's prospects. "T-Mobile is the best company in a tough industry. The team is executing well, taking share and expanding margins," wrote the financial analysts at New Street Research following the release of T-Mobile's second quarter earnings. "However, the upside is limited by two things: first, the market broadly shares our thesis and; second, the sector is challenged. We have been worried that a falling sector multiple would erode the upside from growth at T-Mobile."

The analysts at MoffettNathanson offered a similar assessment: "Of the Big Three [AT&T, Verizon and T-Mobile], T-Mobile is inarguably winning. They are capturing the higher share of gross and net additions, and they now have the industry's lowest churn rate," the analysts wrote after the release of T-Mobile's Q2 earnings report. "Still, against a backdrop of slowing industry growth – or, at least, growth for the Big Three – investors will inevitably look for signs of rising competitive intensity, and perhaps the most important sign is that ARPU is once again declining."

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano