Blog Post

Can Outsourcing Its Network Stem the Bleeding at Sprint?

Updated: Sprint (s fon), the No. 3 wireless carrier, is considering outsourcing network operations and management duties to Sweden’s Ericsson (s ericy), 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.

16 Responses to “Can Outsourcing Its Network Stem the Bleeding at Sprint?”

  1. I have been a Sprint customer for about 18 months- I have been very happy, at least where I live the Sprint network is far better than AT&T or T-Mobile. I have never had a problem with customer support & my rates are about 40% of what I was paying AT&T. I hope they solve their financial problems, I would hate to see them go under

  2. I think we’re going to see more and more of these multi-nationals outsourcing work, merging, etc. With the current financial crisis, companies are doing everything they can to cut costs without losing revenue…Sprint is no exception, apparently.

  3. George

    Ericsson supplies none of Sprint’s macro network equipment. Therefore, the notion that they are somehow uniquely qualified to provide a superior level of support is inaccurate. On the contrast, they may (will) be supporting equipment engineered and provided by competing telecom equipment suppliers.

  4. The best part of that whole deal is that Kathy Walker, Sprint’s ex-Network Chief, is now working for Ericsson and will likely be back in her old job of running their CDMA network….talk about a lack of corporate social responsibility! She got a big severance and then went straight to work for the company that she had been in outsourcing negoatiations with prior to her departure.

    • Ben Johnson

      And to top it off. Kathy will oversee the tranfer of former Sprint employees to contract positions. Any job that can be done remotely will be moved overseas where Ericsson has a huge contingent of low paid contractors. This is where most of the cost savings will come from for both Sprint and Ericsson. This is also the very thing Obama is discouraging and working to prevent the erosion of the American workforce. Very sad indeed…

  5. I am the analyst whom you are misquoting. The quote is out of context, and WAS NOT DIRECTED AT SPRINT. It was part of a broader commentary on the business of outsourcing among the telcos I’ve researched globally.
    What I stressed was that outsourcing can’t be thought of as a cure all.
    Outsourcing achieves some balance sheet improvements, certainly. But it does the most good when it frees up telco management to focus on innovation in services, rather than worrying about non-differentiating operational functions.
    Want further clarification of my actual opinions? Get in touch. +44 207 307 1085.

  6. Rahul Tyagi

    I think this is a smart move by Sprint to outsource their business operations. I think it is win-win situation for Sprint, Ericksona and Subscribers. This would boost Sprint’s bottom line, which i hope they may decide to pass down the food chain as well. This can in turn make them more competetive in years ahead. As we know Erickson is one of the leader in wireless network space, Erickson is managing network operations in other countries where they have larger network than Sprint.

    I would be only curious to see structure of deal, For example whether they are outsourcing development of new product and services, I think they should not. Sprint needs to be more innovative in products and structuring contract for example two years back they came up with deal to become backbone for Amazon Kindle download, It seems unique and may be game changer deal, While they are able to increase load factor of their network I am not sure how much margin they are able to make out of this deal.

    • vijaygill

      Rahul, how exactly are they going to boost sprints bottom line? Not saying that they can’t or that they won’t, but the question is what it is that they are doing that is going to enable sprints bottom line to get boosted. And why can’t sprint do it?

  7. Since Sprint is the smaller of the 3 majors, it makes sense that they would need some help. It doesn’t help that most of the cellular providers consider that WiMAX techonology will have a similiar fate as betamax.

    But consider this, most of Sprint’s infrastructure (BTSs) is equipment built by Ericsson, since their engineers designed and build the equipment, don’t you think that they would know best how to serve/trouble shoot their equipment?!

    That’s the one thing that these aritcles forget to tell you!!!!
    It’s almost seems that the media is against Sprint.
    I am not even a Sprint client, but I work in the industry and these are some things to consider.

    • I don’t think Sprint has any Ericsson equipment. When I worked there they had Motorola, Nortel and Lucent. One thing I see this outsourcing doing is slowing down there Network upgrades/investments. With all of the financial issues Sprint has been having over the last few years they definitely will not be investing into their networks like Verizon and AT&T. This only means Sprints Network quality which rates at the low end of the industry (across the nation) will continue to suffer.
      So, if and when they get there customer service problems resolved they will then have to focus on the Network because Ericsson is not going to be footing the bill for Network requirements they are simply going to be there to manage what Sprint is giving them! Good luck to all the employees going over to Ericsson; you have just been put into another big steaming pile of Sprint!

  8. I hope these guys can find their way out of the woods. I am a current Sprint subscriber and oddly enough while I reckon their support organization probably needs some work and it seems that their Boost $50 all you can eat plan may need some work on the SMS infrastructure that the Sprint network is actually pretty solid, with good connectivity and reliability in my personal experience. I am not sure I see how outsourcing will bring improvement to something that is not broken.