The clock seems to be running out on Sprint's (NYSE: S) groundbreaking deal to outsource its network operations to Ericsson (NASDAQ: ERIC). And neither company is saying anything about what comes next.
The 7-year, $5 billion contract was announced July 9, 2009, with the carrier transferring 6,000 employees to the Swedish gear vendor and Ericsson taking over day-to-day operations of the CDMA, iDEN and wireline networks. The outsourcing arrangement, which was big enough to merit its own name – the companies dubbed it "Network Advantage" – was hailed as a "game changer" at the time by one analyst.
It's unclear exactly when the contract when into effect, but it appears to be set to expire soon. When asked last week by FierceWireless to clarify the status of the deal, a Sprint representative said only that "Ericsson continues to be a valued strategic partner for Sprint." The representative declined to say whether the contract had been renewed, or whether Sprint planned to renew it.
And none of the four analysts reached by FierceWireless knew the status of the contract. But multiple analysts said the infrastructure market seems to be much more competitive than it was when the deal was inked seven years ago.
"Ericsson has been a strong supplier on the network side… and has been intertwined with the Sprint network as the result of this outsourcing contract, but Sprint has signed a few services deals with the likes of Amdocs, Alcatel-Lucent, and Nokia over the past few years for a variety of technology and support," said Paul Rizzuto, a senior analyst with Current Analysis's Telecom Vendor Services, via email. "Combine that with the new Nokia bursting on the scene, I wouldn't be surprised if that is what is holding up a possible renewal."
And Rizzuto's colleague Peter Jarich noted that Samsung is aggressively pursuing the infrastructure market, adding another major player to the landscape.
There are several ways the outsourcing arrangement may not have lived up to expectations for either company. Sprint may regret having handed over so much of its internal expertise regarding network operations and may already have retaken control of some areas. The massive pact also could have been more costly than Ericsson had predicted, perhaps even being unprofitable overall.
Meanwhile, Sprint continues to cut costs across the board to increase its financial stability and reverse its slide. The carrier raised eyebrows a few months ago when it lowered its capex guidance for the rest of the year to roughly $3 billion, far below analysts' estimates in the range of $4.5 billion.
Sprint is clearly focusing on small cells as it looks to save money while it densifies its network, but the carrier simply can't overhaul its nationwide network overnight, said Iain Gillott of iGR Research.
"I think small cells look really good on paper; they make for great PowerPoint slides," Gillott told FierceWireless. "But those small cells are not going in the ground that quickly…. That's currently a two-year process," although that timeframe will shorten as municipalities, vendors and carriers work to streamline the process, he said.
Instead, the two companies may be continuing to hammer out a new deal, likely with Sprint trying to figure out where it can bring some operations back in-house to save costs. Meanwhile, Gillott said, the contract may automatically convert to a month-to-month arrangement while they work on an extension. That could be more expensive for Sprint in the short term, but Gillott said he expects the contract to eventually be renewed in some form.
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