Sprint Nextel said the company has prepared to hand over the operation of its networks to Swedish telecommunications equipment manufacturer, Ericsson, as the company’s latest effort to reduce cost and stop further falls in subscribers to its cellular phone services.
Sprint said the company has signed an agreement with period of seven years and value of US$4.5-5 billion, which will free a substantial lump of cash that the company intends to use for developing new products and improving network coverage and quality.
The company said Ericsson will undertake day-to-day tasks like maintenance of service and cellular towers, while Sprint will retain its ownership. Sprint will still have full control of the network, own it and will never sell it.
Under the agreement, 6,000 Sprint employees will be handed over to a subsidiary of Ericsson which is based in Overland Park (Kansas) near Sprint’s headquarters.
Sprint has been striving to overturn its luck and prevail over the status of poor customer service, and has seen a slight rebound recently, chiefly with the Palm Pre smartphone, which lately debuted to amble reviews and is available exclusively on Sprint in the United States.
Charter Equity Research said it agrees that the outsourcing agreement will free cash for the company, which has endeavoured with decreasing revenue and operating losses. Sprint is doing this out of necessity, while the Palm Pre they just released is costing them a pretty penny, so it is a big cost for them, the research firm said.
Sprint denied to give details on the cost saving, but Macquarie Securities expects the network outsourcing and reshuffling employees to lead to an yearly savings of US$100 million.
Separately, Nieslen IAG said Ericsson is familiar with handling operations for other mobile phone companies, from Britain to New Zealand. Nieslen said Ericsson currently manages networks that serve more than 275 million subscribers throughout the world.
But considering that Sprint has 50 million users, the company is the largest carrier that Ericsson has handled and so far this is a big deal for Ericsson. Separately, Ericsson said the company’s vast experience in managing services has made it capable to operate the network at lower cost than Sprint.
Yet, Ericsson reminded that Sprint should be cautious that the hand-off will not harm the quality of its voice and data services. It said that one of the biggest challenges Sprint has today is to make the American public confident that the network will be at least as good as it is now when Ericsson is going to run it.
Anyway, the changes should actually improve Sprint’s service to customers. With Ericsson doing the day-to-day job, Sprint can focus on the quality of the coverage, pay attention to new products and services that differentiate the company from the competition.
In the stock market, investors seemed to have a positive response to the report, as Sprint shares climbed 17 cents or nearly 4% at US$4.48 by the end of the trading day when Spprint announced the plan. The company’s share price has climbed by almost two times since January.
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