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Ericsson inks 'game changing' US deal

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07:11 CEST+02:00
Sweden's Ericsson has signed a contract with Sprint Nextel worth up to $5.0 billion to take over daily management of the US telecom group's network, Ericsson announced on Thursday.

The seven-year contract foresees Ericsson, the world's leading mobile phone network provider, running the network with the help of 6,000 Sprint employees who will begin working for the Swedish company in the third quarter of the year.

A statement from Ericsson said that under the arrangement Sprint would retain "full ownership and control of its network assets" and would keep responsibility for its network strategy and investment decisions.

"Ericsson assumes responsibility for the day-to-day services, provisioning and maintenance for the Sprint-owned CDMA, iDEN and wireline networks," it said.

In May, The Wall Street Journal had reported that Sprint, the third-biggest US mobile operator, was in talks with Ericsson with a view to outsourcing management of its network.

The US business daily said this would reduce costs by 20 percent.

"The move delivers operational efficiencies for Sprint while further expanding Ericsson's network services business in North America," Ericsson said in its statement.

Sprint, which confirmed the deal, has seen its share price fall sharply in the last 12 months as it struggles with subscriber losses.

The company has said it expects the losses to stabilize, but investors are concerned that the declines come at the same time as rivals are adding customers.

The tie-up with Ericsson would enable it to focus resources on extending the coverage of its network and increasing the quality of its communications, the group explained.

"The North American telecom market has finally cracked," commented Yankee Group analyst Camille Mendler, quoted by Dow Jones Newswires.

"Sprint's deal with Ericsson is a game changer that challenges ingrained perceptions of what is core and non-core to telecom operator's business activity," Mendler added.

The deal with Sprint was the second major announcement of the week by Ericsson after the company revealed contracts worth $1.7 billion with two Chinese mobile operators on Wednesday.

Ericsson currently manages networks serving 275 million subscribers around the world and 40 percent of all mobile traffic goes through the group's networks. Sprint has nearly 50 million subscribers.

"This is an important breakthrough in North America for this new business model," said Jan Frykhammar, head of Ericsson's global services unit, who said the deal would represent the model for future business in the United States.

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