Sprint-Ericsson Deal Dubbed a Boon to Both

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Sprint Nextel Inc.'s $5 billion network services agreement with Ericsson promises to boost both companies, industry observers and company officials said today.

For Sprint, it will free the company to focus on innovation in bringing new products and services to market, Steve Elfman, Sprint's president of network operations, said in a conference call.

For Ericsson, it will be its first North American managed services agreement with a major carrier. As such, the deal gives Ericsson a chance to position itself so it can sign similar deals with other carriers on the continent, said Scott Willis, general manager of the Sprint account for Ericsson.

Yankee Group analyst Berge Ayvazian agreed in an interview that the benefits to both companies are substantial. "Sprint is liberated from technical maintenance concerns, and Ericsson gains a larger foothold in non-GSM network management," he said. Ericsson will manage day-to-day operations of the Sprint CDMA, iDen and wired networks, while Sprint retains control and customer care under the deal.

Sprint's 4G offering of Wimax is through Clearwire Inc., and Ericsson will not manage that network under the current agreement.

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The seven-year deal is part of a global trend, Ayvazian said. "You'll see more managed services by major carriers, absolutely, because they can turn over fixed internal costs," he said. The potential downside is that if Ericsson found the deal was not profitable in two years or Sprint found that network performance declined, it would be complicated to unravel the agreement, Ayvazian said.

Sprint has begun to emerge from some financial problems of recent years, but needs to expand its coverage areas, including adding subscribers. It only has half the customer base of Verizon Wireless, which has reached about 80 million customers, Ayvazian said.

Elfman indicated that the Ericsson deal means Sprint can work on expanding network coverage and quality.

Sprint has recently seen the highest average revenue-per-user for its data services of the major carriers and clearly hopes to expand its customer base of data users. Data traffic can create a big spike for carriers, so having network expansion will be a priority, Ayvazian said.

Ayvazian noted that Sprint will probably gain more data users because of an offer by Best Buy to offer a Compaq netbook for 99 cents for this week only, subject to a two-year data agreement with Sprint.

Even though Sprint said the offer was made by Best Buy and not Sprint directly, Sprint benefits when users sign up for a monthly Sprint data plan of $60 for 5GB of data, Ayvazian said.

Aside from netbook buyers, Ayvazian said the Ericsson deal will be good for major business customers of Sprint. He agreed with Sprint executives that network performance will be good or better under Sprint-Ericsson, since Ericsson has worked with 100 other carriers in different parts of the world successfully.

"If I were an enterprise site, I'd rather have Sprint backed by Ericsson than Sprint alone," Ayvazian said.

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