Confirming months of rumors and speculation, Sprint Nextel and Ericsson announced a seven-year outsourcing deal valued at up to $5 billion and involving 6,000 Sprint employees. Under the agreement, Ericsson assumes responsibility for the day-to-day services, provisioning and maintenance of Sprint's CDMA, iDEN and wireline networks, though Sprint made sure to point out that it "retains full ownership and control of its network assets, and solely owns network strategy and investment decisions."
And, presumably to highlight the enormity of the agreement, the companies gave a name to the deal: "Network Advantage."
"No other U.S.-based carrier has followed through on the business-enhancing vision inherent in Network Advantage," said Sprint's Steve Elfman, president of network operations and wholesale. "Our best-ever network performance will become even better by leveraging Ericsson's world-class leadership in network services, their proprietary tools, and the knowledge of more than 30,000 dedicated and highly-specialized service professionals to power Sprint's Now Network."
The announcement also means that the mechanics of Virgin Mobile USA, Boost Mobile and other brands that run through Sprint's network will be handled by Ericsson.
Sprint investors seemed pleased at the news, sending the carrier's stock up by more than 5 percent in the minutes after the announcement. Ericsson's stock remained unchanged.
"The North American telecom market has finally cracked. Sprint's $5 billion deal with Ericsson is a game changer that challenges ingrained perceptions of what is core and non-core to telecom operator's business activity," said Yankee Group analyst Camille Mendler. "Until today, North American telecom operators had proved unwilling to outsource network functions on such a large scale. That said, North American operators are well acquainted with outsourcing: Between 2002 and 2008, extensive outsourcing of functions involving business administration, IT and customer service has already occurred. But externalizing the operation of physical network plant has largely been excluded until now."
However, not all wireless industry players see outright network outsourcing as a viable strategy: Verizon Wireless' CTO said earlier this year that "I am not a believer in (network) outsourcing."
Ericsson is no stranger to the network outsourcing game; the company handles operations of more than 100 other networks covering a total of 275 million subscribers around the globe. Indeed, wireless giant Vodafone signed an outsourcing deal with Ericsson ("managed services" in Ericsson parlance) in 2007 covering supply and distribution of spare parts for its mobile networks across Germany, Spain and Portugal.
As for Sprint's new deal with Ericsson, the agreement includes several key stipulations:
- Customers will continue to work directly with Sprint employees as their primary contact, as Sprint retains full control of the customer experience, customer technical support and services review.
- Sprint retains technology and vendor selections.
- The transferred Sprint employees will become part of Ericsson Services, a wholly-owned Ericsson subsidiary based in Overland Park, Kan., a move that "retains jobs in the United States," according to the companies.
Further, the two companies said that "no force reductions are currently contemplated as a result of this agreement."
The announcement brings to a close months of speculation that Sprint would outsource its network to Ericsson, the world's largest supplier of telecom equipment, following several disastrous quarters at the nation's third largest carrier where customers departed by the millions.
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