Dec. 19 (Bloomberg) -- Sprint Nextel Corp.’s Bob Brust grabbed hundreds of free pens last week at the Grand Hyatt in New York to bring back to Chief Executive Officer Dan Hesse, jesting at the carrier’s attempts to cut costs on office supplies.

“I just presented Dan with his pen for next year,” Brust, Sprint’s finance chief, said in an interview from his office in Overland Park, Kansas. “The message is, we really have to be serious about this, because we are in an economic event that nobody understands.”

Brust, 65, will need more than free pens to revive finances at Sprint, which has lost about 3 million contract customers this year amid service complaints and competition from larger carriers. Last week, Moody’s Investors Service lowered Sprint’s debt rating to junk on concern over the losses, saying efforts to revive growth may suffer as the recession deepens.

Analysts are predicting the worst fourth-quarter drop in sales for Sprint since at least 2002, according to Bloomberg data. Sprint, which trails only AT&T Inc. and Verizon Wireless in subscribers, lost a record 1.3 million last quarter, even after Hesse, 55, poured more resources into customer service.

“For all of the good things that they’re trying to do, the growth rate of the industry is working against them,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co. “We’re getting perilously close to saturation in the U.S. market, and the closer we get to saturation, the harder it’s going to be for Sprint to right the ship.” New York-based Moffett rates the shares “market perform” and doesn’t own any.

Economic Crisis

The carrier is vying for subscribers in the worst financial crisis since the Great Depression. The recession, triggered by the collapse of the subprime mortgage market and a subsequent spate of bank failures, may last through the middle of 2009, according to the Securities Industry and Financial Markets Association.

“We were in our own private storm at the beginning of the year, then we got caught in the bigger storm,” Brust said. “This, too, will pass, and it surely will.”

The executive may save Sprint about $40 million by closing cafeterias, buying fewer office supplies and putting printers in storage. Part of the money Sprint saves will go to advertising to help reverse customer losses, Brust said. This month, the company rolled out new ads that play up its value, telling people they can save $240 to $1,000 a year on family plans compared with other large carriers.

Brust said he would rather hang on to Sprint’s cash than return it to shareholders in a buyback. Sprint also scrapped its dividend and reduced capital spending by 59 percent from last year, adding cash to the balance sheet to shield itself from the slump.

Stock Performance

Investors might prefer a little relief, since the stock has dropped by 85 percent this year. Sprint rose 14 cents, or 7.8 percent, to $1.94 at 4 p.m. in New York Stock Exchange composite trading.

Sprint has $22.6 billion in debt outstanding, and Brust had doubled its cash to $4.1 billion as of September to avoid liquidity problems or any need to borrow in the near future, he said. Cash from operations fell 30 percent from a year earlier in the third quarter, and was down 45 percent in the second quarter.

Brust joined Sprint in May, one of the top executives Hesse named after taking over a year ago. The executive, who aided turnaround efforts at Eastman Kodak Co. and bankrupt Delphi Corp., was newly retired and starting off on a monthlong safari in Africa when he got the call about the Sprint position.

He joined Hesse about two months after the carrier posted a loss of almost $30 billion from writing down the value of its 2005 purchase of Nextel Communications Inc. Since then, Hesse has cut jobs and improved customer service, allowing the company to save more by closing call centers.

Sprint’s Issues

“I knew that Sprint had a lot of issues to deal with and that there were a lot of improvements that needed to be made, but I just didn’t realize how many things there were and the depth of some of the issues and problems,” Hesse said in an interview last week. “This is not going to be a quick turnaround, and of course the economy that we’re facing right now just adds an additional element in terms of turning the business around.”

To woo users back, Sprint is introducing at least five new phones in the first half of the year for the iDEN walkie-talkie network. Sprint will revamp the system, acquired with Nextel three years ago, after failing to find a buyer that would pay the price Hesse sought.

Network Value

While the network is probably worth about $3 billion based on profitability, Sprint would have to get about $5 billion for it to make a sale worthwhile, according to Stifel Nicolaus & Co. analyst Christopher King in Baltimore.

Sprint’s other managers have moved some Sprint stores to more affluent neighborhoods and closed down resellers that were too close to Sprint-owned stores or weren’t performing well.

UBS AG’s John Hodulik says the company may lose about 1 million subscribers this quarter. The New York-based analyst was at dinner with Brust and four investors at New York’s Capital Grille when the CFO showed off his pen collection.

“You may have upset a lot of your customers over time, and they want to leave, but they have contracts that they’re locked into,” Hodulik said. Cost cutting “doesn’t address the underlying problem at the end of the day. They’ve got to get the top line fixed -- that’s Dan’s job.”

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: December 19, 2008 16:07 EST