It’s now official, Sprint Nextel (NYSE:S, news, filings) has signed an agreement to outsource both its wireless and wireline operations to Swedish equipment maker Ericsson (NASDAQ:ERIC, news, filings). The seven year deal is valued at $4.5-5B and will apparently begin later this year, although it will take over a year for everything to be fully in place. The deal is pretty much as expected based on earlier rumors, Sprint maintains ownership and control, while Ericsson does the daily monitoring and maintenance of the equipment itself. I still don’t quite get the concept, to me the network seems like it should be an area of core competence for any wireless operator. But I don’t have a dog in this hunt, so good luck to Sprint and Ericsson on making this thing work.
Not just on the spreadsheet either, but for the people. The deal will involve the transfer of some 6000 employees to an Ericsson subsidiary which will be based at Sprint’s HQ at Overland Park. For most, hopefully that means that the biggest upfront change will be the name on the company stationary, they will be working in the same places they always have doing the same things they have been doing. Longer term, I would expect Ericsson to make some changes to streamline things to fit their own corporate structure of course.
The inclusion of its wireline assets in the deal answers my earlier question: why wireless and not wireline? They did both. In an answer to a question, Sprint said its ability to do a JV/sale of its wireline division is not affected by this deal. Of course, it is affected – any change affects things, but what they mean is that having strategic control of the network means they can still do what they want with it. The contract surely includes the ability to modify the network depending on the needs of the business. Also, the underlying strategic reasons why Sprint’s wireline business might have a JV or something else in its future don’t change when operations are outsourced, because much of that is rooted in things like the age of the original fiber build.
While much PR is spent on the ‘customer experience’, investors are probably more interested in turning around the bottom line for now. Sprint expects to save money of course (can you imagine anyone outsourcing so they can pay more?), but the company isn’t yet saying how much. That’s probably smart, because it probably isn’t that easy to predict the true effects given that nobody has really done this before at such a scale in a developed market.
I’m curious now whether Ericsson will find other wireless networks looking to outsource. It would seem that such an outsourcing business would do better with more than one customer, given the efficiencies of scale. But I can’t see AT&T (NYSE:T, news, filings) or AT&T (NYSE:T, news, filings) following Sprint down this path. TMobile perhaps? MetroPCS (NYSE:PCS, news, filings)? Hmmmm…
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