Sprint Is in Talks to Outsource Its Network

The Wall Street Journal reports that Sprint Nextel Corp. is in final negotiations to outsource management of its cellular network to Telefon AB L.M. Ericsson and transfer 5,000 to 7,000 U.S. employees to the equipment vendor in a cost-cutting move to help offset Sprint’s dwindling subscriber numbers.

There are the efficiencies of scale here ¬†to be gained here. As long as Ericsson continues to maintain the required KPIs and metrics mutually agreed upon between Sprint and Ericsson, the service as experienced by the customers should not change. There is precedent for this – Bharti/Airtel, one of India’s largest GSM providers has been doing exactly this for a long time and it appears to be quite successful. However, I have to wonder why Sprint or Airtel can’t manage to run their own core business more efficiently than outsourcing it to a vendor. Is this just a substitution for poor management? Certain things like drive by testing could be better done by vendors – they can leverage the cars and testers for several different providers, so amortizing that fixed cost over several different networks – but for ongoing OAM? It would require the same sort of headcount because once you’re baselined, the ratio of incidents/people would be the same for anyone. ¬†Networks are large and complex enough that you would have dedicated teams per service provider anyway. You would get a bit of flexibility in moving headcount around from provider to provider (think of this as cloud computing except with engineers instead of servers), but I can’t see how the major cost savings would add up. To me it looks like failure of internal metrics and cost controls. This is your core business, you would be able to run it better than an external vendor.

Anyone have some thoughts on this?

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5 Responses to Sprint Is in Talks to Outsource Its Network

  1. NB says:

    I assume that Ericsson won’t have to pay the extortionate consultancy tarriffs charged by Ericsson to its clients.

  2. […] Vijay Gill is wondering whether the possible outsourcing deal is “just a substitution for poor […]

  3. Jason Lackey says:

    As a current Sprint subscriber my experience is that while they may have trouble with support and device selection that the network has been more of a benefit than a liability for these guys and that oursourcing runs the risk of turning an advantage into a disadvantage.

    As a former Kansan who used to drag race his daddy’s Mustang GT in front of the Sprint campus on warm summer nights I am rooting for these guys but wish they were GSM from a handset flexibility standpoint.

  4. Chris says:

    I suspect that internally, Sprint’s execs are increasingly seeing Sprint as primarily a marketing company – their core competency isn’t so much running the network as it is marketing and selling phones and mobile services. But their traffic levels are far too high to ditch their infrastrcture entirely and go MVNO, so outsourcing the management sounds like a good middle ground.

    What’s surprising here is that this comes after they boned the pony already by (poorly) outsourcing their customer service – given that experience, I’d expect them to be more gun-shy about outsourcing something even more critical to their revenues.

    On the other hand, if you look in other industries there’s quite a bit of precedence for this – Coca-Cola’s business model comes to mind if even if it’s not a perfect analogy.

  5. Chafik says:

    …and I would add they would be stupid NOT to run it themselves. I see this a deadly mistake..Ericson might be able to keep the boat running for sprint, but i have witnessed a very similar act happening with a large software company outsourcing it is data center operations while making a bold move into the saas/cloud services market!!!??? you DONT outsource your existing or soon to be CORE competency to some third party, add yet another layer of process and bureaucracy. Sprint will soon realize just what that software company realized..your ability to adapt to market needs will hit slow motion..next time they are to install a cellular tower and have to do go through change approval through both companies, they will feel the pain.

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