Sprint Will Pay Ericsson $5B to Run Its Network

sprint-logoUpdated: Sprint (s S) today said it will turn over the day-to-day management of its wireless network to Ericsson (s eric), and spend between $4.5 billion and $5 billion over the next seven years for the service. The two companies will host a conference call later in the day to discuss the agreement, which Sprint is calling Network Advantage. It looks like Sprint is doing this to benefit its balance sheet — switching the capital expense of running its own network to an operational expense. Here are the details so far:

  • The deal encompasses Sprint’s CDMA, iDEN and remaining wireline networks.
  • 6,000 Sprint employees will be transferred to Ericsson, but Sprint spokesman James Fisher says, “They’ll be doing the same jobs in the same places,” only now they will work for Ericsson.
  • No layoffs are planned, and the Sprint personnel will shift over to become Ericsson employees in the third quarter.
  • Sprint will still own its network.
  • Sprint will continue to make strategic decisions about its network and will choose equipment vendors, etc.
  • Consumers will still deal with Sprint for customer service and technical support.

Instead of dealing with network operations, Sprint will now focus on service and innovation, which sounds pretty similar to what it said to me when I asked what it would do after it gave up control of its 4G WiMAX network to Clearwire. At the time,  Todd Rowley, VP of Sprint’s 4G business unit, told me that a focus on services rather than managing the network was the wave of the future in the telecom world — the network is merely a pipe, and the service provider must become the purveyor of customized service packages and applications over that pipe. Other network operators such as India’s Bharti have taken similar steps, and it’s certainly a better option than some carriers have employed when faced with connectivity becoming a commodity.

If Ericsson can efficiently run Sprint’s disparate networks and Sprint can indeed derive cost savings from this deal, while investing in innovative products and services, it may prove to be a case study for future telecommunications executives to review. However, there’s a lot that can go wrong, and previous attempts to outsource operations in other industries have had a mixed track record.

Update: After the conference call this afternoon, there are only two points that really stuck out, other than the fact that both Sprint and Ericsson were cagey about how much money this deal would save Sprint. Item one is that anything Sprint saves from this agreement will be reinvested back into the network to improve coverage. Item two is that Ericsson expects this deal to be profitable over time, but an executive said it will likely have lower margins than some of its other outsourcing contracts.