Sprint Outsources Network Operations to Ericsson Services

Sprint has announced a seven-year, $5 billion contract to outsource management of routine network functions to equipment maker Ericsson. The unusually broad agreement goes further than previous outsourcing deals by affecting virtually all of Sprint's wireless and wired networks.

Think of it this way: Sprint believes network management no longer provides strategic benefits.

Steve Elfman, president, Sprint network operations and wholesale, says that although the company will not disclose precise savings, Sprint expects cost reductions per labor unit, plus avoided software investment, less investment in inventory and less spending on software licenses.

Some 6,000 Sprint employees will transition over to Ericsson Services at the end of the third quarter as part of the deal.

Sprint says the outsourcing will allow the company to divert investment and resources to cusotmer facing features including the network, service quality and development of new services.

Sprint retains full ownership and control of its network assets, and solely owns network strategy and investment decisions.

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 also retains technology and vendor selections.

Ericsson assumes responsibility for the day-to-day services, provisioning and maintenance for the Sprint-owned CDMA, iDEN and wireline networks.

Transferred Sprint employees will become part of Ericsson Services Inc., a wholly-owned Ericsson subsidiary based in Overland Park, KS, a move that retains jobs in the United States. No force reductions are currently contemplated as a result of this agreement.

Yankee Group analyst Camille Mendler says “the North American telecom market has finally cracked." Owning a network still provides strategic value, as do customer-facing operations, the move suggests. But network operations do not.

Mendler believes Sprint’s deal is a game changer. “Until today, North American telecom operators had proved unwilling to outsource network functions on such a large scale," she notes.

The deal provides support for the idea that, in the future, mobile networks will focus either on customer-facing retail operations, while others will focus on wholesale. Sprint's choice to focus on customer-facing operations is unaffected by the outsourcing. So far, none of the major U.S. mobile operators has decided to focus on wholesale, though executives in some other markets, such as Europe, seem more intrigued by the idea.

--Gary Kim