Managed Services Going Primetime

Sprint-Ericsson Deal the Latest Example of a Managed Services Trend

The Sprint-Ericsson deal represents the latest – and first in the United States – example of a trend that promises to reshape the telecom industry in coming years, as service providers increasingly shed back-end network operations to focus on marketing, customer service, and advanced services to fuel subscriber growth.

The deal, said Elfman, will allow Sprint – which has suffered from network quality issues and subscriber erosion since its $35 billion merger with Nextel in 2005, widely viewed as one of the more poorly executed telecom mergers in recent history – to focus on “improving the customer experience, expanding coverage, improving quality, and bringing new open devices, open applications and new services and integrating them on the network.”

Under the terms of the deal, Sprint will pay $4.5 billion to $5 billion to Ericsson, which will manage Sprint’s iDEN, CDMA, and legacy wireline networks. Ericsson will take on 6,000 former Sprint employees and will create a new subsidiary, Ericsson Services Inc., based in Overland Park, Kan., at Sprint corporate HQ.

The deal follows a string of such managed-services partnerships in the last two years in Europe and Asia. One of the biggest came last March, when Ericsson signed a similar, seven-year deal to manage network operations for Vodafone plc UK, totaling 19.2 million customers. Simultaneously, Orange Spain, a division of France Telecom (FTE) with 11.3 million mobile subscribers, handed a five-year managed-service contract to Nokia Siemens Networks.

Last month BT Group (BT) said it would outsource its international voice termination business to Tata Communications in a $1.5 billion deal – an agreement that Yankee Group’s Mendler called “a Biblical event for the global telecom industry.”

Competition for such contracts, international and domestic, has become fierce, with major vendors like Ericsson, Nokia Siemens, and Alcatel-Lucent (ALU) vying for multibillion-dollar deals – and offering carriers favorable terms to win them. The Sprint deal was particularly notable because Ericsson, which has a relatively small footprint in North America, won out over domestic supplier AlcaLu, which had been considered the front-runner for the contract.

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