Sprint Nextel announced a USD4.5–5 billion managed services contract with Ericsson on 9 July 2009. Ericsson will assume responsibility for the day-to-day services, provisioning and maintenance for Sprint’s CDMA, iDEN and wireline networks. As part of the deal, 6000 Sprint employees will be transferred to Ericsson, where they will establish a delivery centre in Overland Park, Kansas. Analysys Mason had the opportunity to speak with Bob Azzi, Sprint’s Senior Vice President of Network, and Scott Willis, Vice President and General Manager of the Sprint account at Ericsson, to get a better understanding of this agreement.
Interestingly, Ericsson is not an infrastructure supplier to Sprint. Ericsson had been involved in some applications development with Sprint, so the two companies have some history. However, Sprint made it clear that it evaluated potential suppliers on the basis of its managed services capabilities, and that the equipment portfolio was not a factor in the decision-making. Ericsson has a good deal of experience of managing multi-vendor environments, and Sprint found that Ericsson’s customers are happy with its performance. Sprint says that this deal should not have an impact on its relationships with other partners, because Ericsson will be handling only a portion of Sprint’s overall business. Ericsson will still need to compete for business in the areas of systems integration and network infrastructure.
Sprint positioned this agreement as a way to improve its network performance and end-user experience, rather than strictly a cost-saving exercise. Sprint expects that Ericsson will be able to use the tools and processes it has developed to support other communications service providers (CSPs) to improve the efficiency of Sprint’s network operations. It expects that its networks and business processes will be transformed as a result of this arrangement. Ericsson will be managing Sprint’s OSS environment (but not its BSS environment), so there will be some systems rationalisation that will see some of Ericsson’s telecoms software solutions integrated with existing Sprint systems. One example is the integration of Sprint’s OSS with Ericsson’s managed services delivery platform. This will enable a single view of network health that will help improve service management. While Sprint anticipates achieving greater operational efficiency, the point of this agreement is to improve its network quality. By avoiding the investment in new tools and systems, Sprint will be able to invest in other areas of the business to expand its coverage and provide greater redundancy. Sprint says this transformation will also result in more-effective device development, technology planning, ‘open’ capabilities, and the launch of innovative applications and services.
This is a significant announcement for two reasons.
- It is the first major managed services contract for a Tier 1 North American CSP. CSPs in this region tend to view their networks as a source of competitive differentiation. For this reason, Sprint emphasised that it will retain ownership and control of its network assets, and will remain responsible for network strategy and investment decisions. We do not expect other major CSPs to make similar managed services deals, although we can foresee them outsourcing the legacy portions of their networks – especially if Sprint shows improved performance as a result of this agreement.
- It has enabled Ericsson to gain a major foothold in the North American market. Following its acquisitions in recent years of US-based Redback Networks and Entrisphere, Ericsson established a North American IP and broadband operation in San Jose, California – even moving some executives from Sweden to the USA. The company’s US headquarters are in Plano, Texas, and its employee population in North America will now increase to about 12 000 with the addition of the Sprint employees. This deal represents what Ericsson hopes is the first of many new wins in the North American market. It also supports our position that managed services will remain a strong area of growth for network equipment manufacturers (NEMs), helping to offset the slowdown in the equipment market.
Over the past few years, Sprint’s business has declined significantly. It was shedding customers and developed a reputation for poor network quality and customer service. The CSP has made significant investments in improving both, but clearly felt more was needed. By turning to Ericsson, Sprint hopes to accelerate its improvement efforts. Ericsson has invested more than USD1 billion in developing its managed services capabilities. It has shown that it can manage networks at scale – it has more than 275 million subscribers under its management. We will be watching with interest as the transition occurs. The success of this deal will be measured by a reversal in the decline in customer numbers, and improved financial performance for Sprint. We will also be interested to see the competitive response of the other major CSPs if this deal does indeed make Sprint a more formidable opponent in the US market. As for Ericsson, we will be looking to see how well the company can use this deal to increase its footprint in North America.