Sprint Nextel signs networking deal with Ericsson
KANSAS CITY, Mo. (AP) – Sprint Nextel Corp. on Thursday announced it will transfer operation of its wireless and wireline networks to Swedish telecommunications equipment maker LM Ericsson.
The deal does not involve the company's high-speed wireless Internet technology, also called WiMAX, which Sprint transferred to Kirkland, Wash.-based Clearwire Corp. last fall. That company, of which Sprint is a majority owner, is rolling out WiMAX services in several cities this year. Last week, Comcast begun private-labeling Clearwire’s Clear mobile WiMAX service, becoming the first large cable operator to offer a 4G wireless service.
The seven-year deal between Sprint and Ericsson, valued between $4.5 billion and $5 billion, will transfer about 6,000 Sprint employees later this year to an Ericsson-owned subsidiary, based at Sprint's Overland Park, Kan., headquarters. About 2,000 of the employees are currently based in the Kansas City area with the remainder spread across the country.
Sprint officials stressed that the nation's third-largest wireless provider will maintain ownership and control of its network, including future investment and strategy, while Ericsson will provide day-to-day maintenance and monitoring of the network of cell towers and call switching equipment.
"This is about improving the customer experience," Steve Elfman, Sprint's president of network operations and wholesale, told reporters. "While we get the benefits of Ericsson's expertise and the tools and best practices they bring to the table, we can focus our attention on bringing great devices, great services, great applications to [customers]."
Elfman said the company expected to save money on employee and other operational costs with the agreement but declined to give details on how much. Sprint laid off 8,000 employees earlier this year, which it said provided $1.2 billion in savings.
During a conference call with analysts, he said Sprint would reinvest much of the savings back into its networks to expand their reach and improve their quality. They currently serve 49 million wireless subscribers.
Yankee Group analyst Camille Mendler said in a research report that the agreement "changes the game in the North American telecom market" as it represents the first time a major telecommunications provider has turned over operation of its network to a third party.
She noted that Sprint has begun showing signs of turning around its operations, hampered by technological and operational snags since buying Nextel Communications Inc. in 2005. But she said the company is still struggling to attract and retain customers, which network management transfers alone can't help.
"Sprint will not complete a business turnaround simply through its relationship with Ericsson," she wrote. "What really matters is how such relationships – if proactively managed – can free up time and resources."
The Sprint employees are expected to switch over to Ericsson in late third quarter, after which it will take 12-18 months to fully shift operations to Ericsson. Elfman said Sprint will retain about 2,000 employees who have network-related jobs, such as budgeting.
Jan Frykhammar, head of Ericsson's Global Services unit, told reporters the company was "excited" by the contract, its first network operation deal in North America. The company already manages global networks that serve 275 million subscribers with around 30,000 employees.
"This is really a proof point of a long-term partnership between Sprint and Ericsson," Frykhammar said.
The deal, which has been rumored for months, came following a "vigorous bid process" with other potential management companies that lasted up to a year, Elfman said.
"Our judgment over that fairly lengthy time ... they came out far ahead," he said, adding that Sprint will continue to benefit operationally and financially from Ericsson's expertise in networking and its economy of scale.
Frykhammar and Elfman downplayed analysts' concerns that Ericsson has typically invested in technology opposed to Sprint's wireless networks, which use so-called CDMA and iDEN technology, saying network management is the same regardless of the technology involved.
Sprint shares gained 17 cents, or almost 4 percent, to $4.46 in trading Thursday.