Sprint on Thursday said it would outsource its network to Ericsson 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.