Sprint outsourcing deal with Ericsson potentially a big winner

Months of rumors came true last week as Sprint Nextel and Ericsson announced a groundbreaking deal to outsource Sprint’s network operations to Ericsson. The seven-year deal is valued at up to $5 billion and involves 6,000 Sprint employees moving to Ericsson in the third quarter. Ericsson will assume responsibility for day-to-day services, provisioning and maintenance of Sprint’s CDMA, iDEN and wireline networks, while Sprint will retain full ownership and control of the network. What might this first-ever outsourcing deal for the commercial mobile wireless industry mean for iDEN customers?

It’s no secret that Sprint has been struggling to rein in costs as it continues to deal with customer defections. Ever since Sprint purchased Nextel Communications in 2005, Nextel’s iDEN push-to-talk business has taken a nose dive. According to the company, it has corrected the quality issues that plagued the iDEN system and invested billions to improve quality and customer service. But both CDMA and iDEN customers keep leaving. In theory, by allowing Ericsson to focus on improving the network, Sprint is free to keep a razor-sharp focus on marketing services and improving customer service, while saving money.

Just how much money Sprint will be saving is not something the carrier is sharing. But if this arrangement doesn’t work, it could be the end of Sprint, analysts say. If it does work, Sprint could find itself in a significantly strengthened position.

Industry pundits are mixed on the move. Ericsson handles operations of more than 100 other networks covering a total of 275 million subscribers around the world. But this is the biggest deal ever for Ericsson — and probably the most complex, as the vendor will be managing three different networks while dealing with a pesky rebanding situation that drags on with mounting costs.

Sprint’s networks have to operate flawlessly as the carrier hands over control of these networks to Ericsson. And customers, especially mission-critical customers using iDEN P2T technology, must be assured that their vital communications requirements are in good hands. After all, network quality is what got Sprint into its mess in the first place.

Ericsson, however, doesn’t want to screw this one up. Because it primarily plays in the GSM world on the infrastructure side, it has had a hard time in the past cracking the U.S. market. Only recently did it win a Long Term Evolution (LTE) network deal with Verizon Wireless. It has been pushing its managed network business hard as its growth engine. This deal was a major coup for the company.

If this all pans out, we could see a significantly strengthened Sprint, capable of out-marketing competitors that have been cherry picking some of Sprint’s most valuable customers. We also could start seeing more innovative iDEN offerings akin to what the original Nextel did in the 1990s.