Sprint Nextel signs networking deal with Ericsson

KANSAS CITY, Mo. -- Sprint Nextel on Thursday announced it will transfer operation of its wireless and wireline networks to Swedish telecommunications equipment maker LM Ericsson.

The seven-year deal, valued between $4.5 billion and $5 billion, will transfer about 6,000 Sprint employees to an Ericsson-owned subsidiary, based near Sprint's Overland Park, Kan., headquarters.

Sprint officials stressed that the nation's third-largest wireless provider will maintain ownership and control of its network, including future investment and strategy, while Ericsson provides day-to-day maintenance and monitoring of the network of cell towers and call switching equipment.

"This is about improving the customer experience," Steve Elfman, Sprint's president of network operations and wholesale, told reporters. "While we get the benefits of Ericsson's expertise and the tools and best practices they bring to the table, we can focus our attention on bringing great devices, great services, great applications [to customers]."

Elfman said the company expected to save money on employee and other operational costs with the agreement but declined to give details on how much. Sprint laid off 8,000 employees earlier this year, which it said provided $1.2 billion in savings.

The employees are expected to switch over to Ericsson in late third quarter, after which it will take 12-18 months to fully shift operations to Ericsson. Elfman said Sprint will retain about 2,000 employees who have network-related jobs, such as budgeting.

Jan Frykhammar, head of Ericsson's Global Services unit, told reporters the company was "excited" by the contract, its first network operation deal in North America. The company already manages global networks that serve 275 million subscribers.

"This is really a proof point of a long-term partnership between Sprint and Ericsson," Frykhammar said.

The deal, which has been rumored for months, came following a "vigorous bid process" that lasted up to a year, Elfman said.

"Our judgment over that fairly lengthy time ... they came out far ahead," he said, adding that Sprint will continue to benefit operationally and financially from Ericsson's expertise in networking and its economy of scale.

Yankee Group analyst Camille Mendler called the deal a "game changer" because telecoms have previously given others responsibility only for back office and customer service operations.

"Until today, North American telecom operators had proved unwilling to outsource network functions on such a large scale," Mendler said.