Sprint - Nextel 2008 Annual Report Download - page 42

Selling, General and Administrative Expense
Sales and marketing costs primarily consist of customer acquisition costs, including commissions paid
to our indirect dealers, third-party distributors and retail sales force for new device activations and upgrades,
residual payments to our indirect dealers, payroll and facilities costs associated with our retail sales force and
stores and marketing employees, advertising, media programs and sponsorships, including costs related to
branding. General and administrative expenses primarily consist of costs for billing, customer care and
information technology operations, bad debt expense and administrative support activities, including collections,
legal, finance, human resources, strategic planning and technology and product development.
Sales and marketing expense decreased $273 million, or 6%, in 2009 from 2008 as compared to $722
million, or 13%, in 2008 from 2007. The decline in sales and marketing expenses for the year ended
December 31, 2009 and 2008 is primarily due to the decline in gross subscriber additions and a decline in labor
related costs due to our workforce and cost reduction activities.
General and administrative costs decreased $1.1 billion, or 22%, in 2009 from 2008 and $382 million,
or 7%, in 2008 from 2007. The decline in general and administrative costs for the year ended December 31, 2009
is primarily due to the decrease in employee related costs as part of our cost cutting initiatives, reduction in
customer care costs, and lower bad debt expense. Employee related costs decreased approximately $536 million
in 2009 as compared to 2008, due to workforce reductions announced in January and November 2009. Customer
care costs decreased $363 million in 2009 as compared to 2008. Bad debt expense was $392 million for the year
ended December 31, 2009 representing a $240 million decline, as compared to bad debt expense of $632 million
in 2008. The improvement in bad debt expense resulted from lower rates of uncollectibility during the period, as
well as lower estimated uncollectible accounts in outstanding accounts receivable. Our improvement in customer
care expense is largely attributable to customer care quality initiatives that were launched in 2008. These
initiatives resulted in fewer calls per subscriber into customer care which was reduced by 39% from 2007 peak
levels. The reduction in calls per subscriber allowed for a reduction of 19 call centers in 2009 and 11 call centers
in 2008. We also have several customer care and collection activities designed to proactively contact subscribers
to ensure they are on appropriate service plans based on their usage and to negotiate payment arrangements
designed to help customers through difficult financial times. As a result, we have experienced a decrease in
involuntary churn, as well as a decrease in the number of accounts and average balances written off in 2009
compared to 2008. The decline in general and administrative costs for the year ended December 31, 2008 was
principally due to the decrease in bad debt expense and lower employee related costs, offset by an increase in
customer care related costs. Bad debt expense was $632 million for the year ended December 31, 2008 as
compared to $896 million for 2007 representing a $264 million decline. The improvement in bad debt expense
was largely attributable to credit policies for new customers and the customer care quality initiatives launched in
2008. Specifically, the ratio of subscribers with a prime credit score to those with a subprime credit score
improved in 2008 as compared to 2007.
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