Sprint Outsources Network Maintenance to Ericsson

Sprint (S) on Thursday said it would outsource its network to Ericsson (ERIC) in a seven-year deal valued at $4.5 billion to $5 billion.

The deal (statement, Techmeme) allows Sprint to offload the costs associated with running its network. Sprint will transfer 6,000 employees to Ericsson. Ericsson will now handle all the day-to-day operations, maintenance, climbing cell towers and other items. The transfer of the network and the employees that go with them will happen in by the end of the third quarter.

Steve Elfman, Sprint’s president of network operations and wholesale, said on a conference call that Sprint still owns its network and is responsible for strategic plans and investments. Elfman added that the goal was to improve the quality of the network and deploy next-generation technologies. Sprint will keep its customer service operations.

Sprint didn’t disclose exact numbers on savings. Elfman said Sprint expects to cut cost per labor unit. Sprint will also avoid investment in the tools that Ericsson already has. Economies of scale will enable Sprint-Ericsson to cut costs on software licenses and other expenses. Those savings will be invested in expanding network coverage.

Among other key parts of the deal:

• Sprint chooses technology platforms and vendors;
• Ericsson maintains Sprint’s wireless and wireline networks;
• Ericsson will optimize Sprint’s inventory of network assets;
• Ericsson and Sprint will focus on improving processes;
• No layoffs are anticipated due to the deal and Ericsson will set up shop in Overland, Kansas, Sprint’s headquarters.

In many respects, the Sprint deal is a straightforward outsourcing pact. However, such deals are rare in the wireless world.

Clarification: My U.S.-centric lens got the best of me. These wireless pacts are common abroad. Camille Mendler, an analyst at the Yankee Group, said:

Outside the United States, deals like Sprint and Ericsson’s are commonplace. Since 2002, wireless operators worldwide have spent $29 billion on network-related outsourcing and managed services deals. It just hasn’t happened in the rather backward US market until now.

Comments

[Aryana:]

The Erickson deal is just another great move by Dan Hesse in the latter 6 quarters. He has beaten Earnings expectations 5 of the last 6 Quarters. Increased cash reserves to over $5 billion, enhanced Sprint's selection of Smart Phones and made Sprint the most reliable network in the nation. This has all been done while lowering the companies debt load. Every survey has shown improved customer service to respectable levels and the company has begun to minimize its churn. Its subsidiary Clearwire expects to have a ubiquitous 4G presence from Hawaii to New York by the end of this year and its Pre-Paid service, Boost Mobile is doing very well...

Jul 09 05:53 PM

[Economyst:]

This is financial engineering trumping good business practice. According to some you don't need to own the network or towers to provide the service - correct but the flaw is once the agreement is up so are you if the network owner wishes to charge an extortionate amount.

Selling towers and leasing them back is done for financial ratios than good business sense. You tie yourself into contracts that if the business environment changes you are stuck.

Anyone who sees this as a positive step - where Sprint can now concentrate on their core business is deluded. This assumes the new organisation to manage their network will automatically be better with essentially the same personnel. You can put lipstick on a pig but its still a pig.

I have seen this form of financial engineering happen so often - why is it that the most successful companies long term are the ones that own their assets.

I understand that Sprint will keep some of its assets but letting go of control of its network is essentially admitting it does not want to be in the operator business any more.

So now you have to spend time monitoring the agreement is being kept by Ericsson - resources that should be better spent elsewhere.

Jul 10 05:50 AM

[Aryamehr:]

Ericsson is no fly by night company and has a good reputation to keep. On another note this is not their first outsoucing deal with a major carrier, even though it is in the USA. There is absolutely no Financial Engineering, what is happening is Ericsson has clearly manifested that they have a proven record of managing and maintaining Wireless Telecom towers to the benefit of their owners. This is their core specialty and IMHO they are much better adept at doing this than any of the carriers. If this was not true then the question to you would be, why did ATT spin off Lucent Technologies, which is now Alcatel-Lucent (ALU)? What Hesse has done is brilliant, he has spun off his 4G platform in a partnership with Clearwire, which is majority owned by Sprint, but in a partnership with a dream team, Intel, Google, Time/Warner, Comcast and just recently Cisco and many others. Now they are handing over the maintenance of their towers to an internationally established company, Ericsson, which has more than a proven record and high standards in the industry, however control and ownership will still remain withSprint. None of this has any resemblance to Financial Engineering, it is a straight forward transaction and a smart move. It allows Sprint to focus on what is important, customer service, retention, innovation and growth. I also believe that many others will follow suit in the US as Sprint begins to manifest the advantages of outsourcing the maintenance of their towers. This move was done with careful deliberation and took over a year to consummate, so I am certain that Sprint has seen the advantages to their bottom line and customer satisfaction. The following will article which I find interesting was recently posted:

Sprint Named Most Reliable Network in PC World’s 3G Comparison Tests
The Now Network Not Only Beats AT&T and Verizon in Reliability, It Also Scores High in Mobile Broadband Speeds
A 3G comparison test by PC World found Sprint (NYSE:S - News) as the more reliable network over Verizon and AT&T in 13 cities examined by the magazine, providing further support for Sprint’s “most dependable 3G network” claim.
The PC World tests took place in March and April this year in 13 major markets across the country, including Boston, Baltimore, New York, Orlando, Denver, Chicago, San Francisco, New Orleans, Phoenix, Seattle, Portland, San Diego and San Jose. In each location, testers measured download speed, upload speed and reliability. In every market, Sprint bested AT&T for reliability. And, overall, Sprint proved more reliable over Verizon with a strong connection 90.5 percent of the time, according to the results. In Boston, Denver and Seattle, Sprint earned perfect scores – 100 percent reliable in connection tests.
Sprint’s Now Network is not only the most reliable according to the PC World 3G tests, it also was applauded for its speed. In most markets, Sprint was competitive with Verizon and AT&T on download speed and was notably faster with better reliability compared with both competitors in the major West Coast cities of Seattle, San Francisco, Portland and San Diego.
The PC World results also show that Sprint’s commitment to network performance is paying off for the company’s customers. Today, according to customers and third-party reports, Sprint’s networks have never been better, with these results serving as further confirmation that Sprint operates the nation’s most dependable 3G broadband network.1
In addition, Sprint is leading the way in next generation 4G service. Sprint launched 4G service in Baltimore in late 2008 and expects to launch it in major markets in 2009. 4G will bring the Internet to life for mobile users by offering a faster Internet experience in more cities across the nation than any other wireless service from a national carrier.
In addition to dependability, Sprint customers enjoy the best value in the industry with a dynamic suite of Everything plans that allow customers to use their phones the way they want without worrying about their wireless bills. For example, Sprint’s Simply EverythingSM plan provides unlimited nationwide calling, texting, email, Web browsing, GPS navigation and much more for only $99.99 per month. That’s a savings of $1,200 over the course of two years vs. a comparable AT&T iPhone® plan.

Jul 10 11:06 AM

[Geddy:]

Again, Araymehr (a Sprextel employee I might add) comes out spouting high marks for Sprextel. Here's what everyone else in the world says and thinks...an already inferior network just got worse. All your references above should be taken in a VERY slight context, since every major publication out there (i.e.-Consumer Reports, Wireless Week, RCR, JD Powers, etc) all tout Sprextel as not even in the top half of any rankings regarding network, customer service, sales, etc. Please let me know if you'd like me to "paste & copy" as you have above just reflecting the edited version of an article (PC World has never been recognized as a reliable source for the Wireless Carriers). I'll be more than happy to just post the link to the reputable publications if you like so you can see the unedited versions (unlike above) for yourself.

I suggest you stop being cheap and take out an actual advertisement instead of publishing rubbish on blogs that are obviously a HUGE sales pitch from an employee.

Jul 10 12:36 PM

[Geddy:]

Please reply back with your sources as I'm fairly certain they're incorrect. I can promise you when results are released for 2nd quarter you will indeed still see major customer losses (the ONLY wireless carrier to EVER lose customers on a consistent basis). Every major reputable publication ranks Sprextel near the bottom of every major category (network, sales, customer service) on an overall basis.


On Jul 09 05:53 PM Aryana wrote:

> The Erickson deal is just another great move by Dan Hesse in the
> latter 6 quarters. He has beaten Earnings expectations 5 of the last
> 6 Quarters. Increased cash reserves to over $5 billion, enhanced
> Sprint's selection of Smart Phones and made Sprint the most reliable
> network in the nation. This has all been done while lowering the
> companies debt load. Every survey has shown improved customer service
> to respectable levels and the company has begun to minimize its churn.
> Its subsidiary Clearwire expects to have a ubiquitous 4G presence
> from Hawaii to New York by the end of this year and its Pre-Paid
> service, Boost Mobile is doing very well...

Jul 10 02:07 PM

[DDate:]

I love the way IncompiSprint outsourced their CDMA network to a company that has slammed the technology for years!!! Eric is a GSM company and knows nothing about CDMA!

Anyway with $30B in debt, bleeding $1B/quarter, delaying paying taxes + vendors and roughly $2B remaining, Chapter 11 will be their Labor Day celebration. After that all contracts are voided. So this PR will be very short lived.

Jul 10 04:16 PM

[Aryamehr:]

Geddy, before you make any accusations I suggest you first corroborate your findings. I have never been a Sprint employee, directly or indirectly, nor have I ever been a Palm employee. As a matter of fact I have never worked for anyone other than myself. So let us put this to rest. I have invested in Sprint and I did initially buy into their shares at around $1.80, however I also bought Ford at around $1.50, Apple at $92, NVDA at $7, EMC at $10, PEG at $23, PFE at $15 and Citi at $7. The only stock in my portfolio that has not done well is Citi. That is why we don't put all our eggs in one basket, no matter how sure you may be of yourself. The one thing I don't do is listen to hyperbole from Anal-cysts or threadsters.

Now let us ask you who you work for, since you are so persistent as to purporting that I work in some manner for Sprint. Do you work for ATT or VZ?

The facts speak for themselves and they are more than manifested in public documents. You might not agree with PC World, CNet or Gizmodo etc but their opinions are just as good as your sources if not better. The fact is Sprint has the most reliable Network on the West Coast of the US. The fact is that Sprint is the only carrier that is offering 4G and will have 4G in at least 10 states by the end of this year. The facts also show that Sprint added $800 million to their cash balances last quarter leaving them with over $4.5 Billion in cash. At the same time they also paid down their debt by $600 Million. Their pre-paid subsidary, Boost Mobile, added close to 700 Thousand new subscribers last quarter. Sprint now has a Smart phone in the Pre that can easily challenge the iPhone. The Ericsson deal will also minimize expenses and accrue substantial savings, without compromising the quality of its network.

Last but not least, Dan Hesse has been at the helm of Sprint since January of 2008 and he has done well to cut expenses and bring the company back on to a positive footing. He has beaten earnings estimates 80% of the time and I expect this to continue. In case you didn't know the nation is in a recession, we have 10%unemployment so it would be natural for one to see a 10% loss in a company's base customers, especially if a great deal of their business came from businesses.

again.

In all honestly I have to admit that the Pre is a much better Smart Phone than the iPhone.

Jul 11 02:30 AM

[Aryamehr:]

DDate, you must be puckering your hinds. Ignorance is understandable but stupidity? In case you don't know where to look for facts about a company I suggest you go to somewhere like Yahoo Finance and check Sprint's balance sheets. According to SEC filings Sprint has over $4.5 Billion in cash and a $20 Billion in loans.

Jul 11 02:36 AM

[Geddy:]

Actually I work for MetroPCS (go ahead, let the slams begin). Again, the publications you mention come no where near as reputable as Wireless Week, RCR, or Consumer Reports (for Lord's sake, Gizmodo is sponsored by Sprint, what else would you expect them to spout!!). Sprextel has lost customer like no other carrier in history. Boost customers are no where near as valuable or come close to making up the loss in post-paid customers.

Total agreement on Dan Hesse as I worked under him with AT&T Wireless back in the 90's, he's an excellent CEO. However, the expense savings he's done to date come at a cost. Layoffs are always the worst way to cut back expenses, especially in the Network where they've mainly occurred....and now tossed aside to have a vendor run it for you. To me that smells of "non-ownership" of your Network. They can tout all they want to that they'll hold Ericsson responsible but it will never be like they really own it.

Jul 13 12:40 PM

[Economyst:]

Sprint control of their network will be done through the legal agreement they have with Ericsson. One thing you need to know is this is the first time Sprint has done this type of agreement but it's not the first time Ericsson has done this. The likelihood is that the agreement would be slightly in favour of Ericsson by the fact that they have experience in doing these types of deals.

Jul 14 05:50 AM