Questions, concerns surround Sprint-Ericsson tie-up

As the industry digests the mammoth, $5 billion outsourcing deal between Sprint Nextel and Ericsson, questions and concerns have arisen about the 6,000 affected Sprint employees, Sprint's network choices and the changing dynamics in the U.S. equipment supplier market.

Sprint sees value in the deal, naturally. According to Ovum's Jaw Dawson, the value of the deal over its seven-year course represents just over $100,000 per year for each of the 6,000 employees to be transferred from Sprint to Ericsson, "which suggests there could be significant savings overall."

Further, J.P. Morgan analyst Mike McCormack estimates savings between $35 million and $260 million over the course of the contract, according to the Wall Street Journal.

But Sprint employees are concerned for their jobs. Ovum's Dawson said the companies plan to transfer those 6,000 Sprint employees within the next three months, "which is an enormous and complex undertaking."

Sprint employees posted their concerns on The Kansas City Star's Sprint Connection Web site. One poster, Dago, said that layoffs should be expected "regardless of what sort of feel-good lies the Sprint execs may be telling now."

To be clear, two companies promised that "no force reductions are currently contemplated as a result of this agreement."

Apart from the actual mechanics and savings involved in the deal, the news also raises the question of what Sprint plans to do with its CDMA, iDEN and wireline networks that Ericsson will now oversee. The carrier did address one issue: a possible move to LTE. Sprint plans to use Clearwire's WiMAX network for high-speed mobile data, according to carrier executives quoted by the Wall Street Journal, and is not thinking of moving to the rival LTE standard.

Finally, Ericsson's appearance on the scene also raises questions about the vendor's future in the U.S. market. Already the company scored a major deal with Verizon Wireless to supply a portion of the carrier's forthcoming LTE network.

Ovum's Dawson offers perspective: "One of the most surprising aspects of the deal is that it was Ericsson, rather than Alcatel-Lucent, which won it. Though Alcatel-Lucent and one other vendor were part of the bidding process, Sprint selected Ericsson. ... Ericsson's relatively weak position in the U.S. generally and Alcatel-Lucent's position as a U.S.-based competitor with significant existing business with Sprint make the win all the more impressive."

Indeed, the situation may well benefit Ericsson's position at Verizon Wireless. Maynard Um at UBS wrote in a note to investors that "we expect Ericsson to use this as a loss leader into the Verizon LTE contract, where CDMA knowledge will be required for deployment and also it will be able to spread the resources across these two customers to lower costs."

For more:
- see this article from ChannelWeb
- see this WSJ article

Related Articles:
Sprint inks $5B network outsourcing deal with Ericsson
Sprint in 'final negotiations' on Ericsson outsourcing
Report: Sprint, Ericsson sign $2B network outsourcing deal
Analyst: Sprint network outsourcing deal not 'imminent'
Report: Sprint to outsource network management to Ericsson
Sprint Nextel to cut 8,000 jobs

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