Can Outsourcing Its Network Stem the Bleeding at Sprint?

Updated: Sprint, the No. 3 wireless carrier, is considering outsourcing network operations and management duties to Sweden’s Ericsson, according to the Wall Street Journal. But would it stem the bleeding in what one analyst called a “gushing chest wound?” The bleeding in Overland, Kan., to which he was referring consisted of 1.25 million subscribers in the first quarter? That compares with Verizon’s 1.3 million wireless additions and AT&T’s 1.2 million new wireless customers during the latest three-month period. As Camille Mendler, VP of enterprise research at Yankee Group, was quoted as saying: “These deals shouldn’t simply be done for the costs. It can’t be a Band-Aid for a gushing chest wound.”

The deal, if agreed to, would see Sprint pay Ericsson $2 billion in return for a 20 percent reduction in network costs. Part of those cost savings would likely come from shifting between 5,000 and 7,000 service employees to Ericsson. In what has become a frequent refrain, Sprint insiders told the newspaper the move would allow the carrier to concentrate on “product development, marketing and strategic partnerships.” Earlier this year, Sprint handed off its 4G WiMAX network to Clearwire to concentrate less on the pipe and more on products. In February, we described the action as Sprint’s Dumb Pipe Dream.

The newfound interest in products stands in sharp contrast to Sprint’s announcement in March that it would slash jobs in its product and content group by 40 percent. Sprint unveiled some 8,000 job cuts in March as part of a plan to save $1.2 billion annually.

Blogger Vijay Gill is wondering whether the possible outsourcing deal is “just a substitution for poor management.” Indeed, with Palm’s Pre due to soon hit the market, now seems like an odd time to be shifting network responsibility.

Any potential deal between Sprint and Ericsson would bring its own irony. In 2005, Ericsson jettisoned its CDMA business in favor of GSM, a worldwide cellular standard. The same year, CDMA-based Sprint bought Nextel, which started the carrier on the path it appears to be traveling today.

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