Sprint Nextel Corp said on Thursday that Ericsson would manage its network as part of a seven-year deal worth $4.5 billion to $5 billion under which 6,000 Sprint workers would move to Ericsson.
Sprint, whose shares rose 4.4 percent, said that it would keep full control of its network after the deal, which it sees helping it improve its network performance more efficiently than it could on its own.
This is about improving our customer experience, Steve Elfman, Sprint's network operations head, said on a call with reporters. While we get the benefit of Ericsson's expertise ... we can focus our attention on bringing great devices, great services, great applications to them.
Investors will closely watch for any impact on Sprint's network performance as the service provider has been struggling to stem customer losses related to a poor reputation for network quality that it is working to shake off.
Elfman declined to give specific estimates for any savings from the agreement except to say that savings would come from Ericsson's expertise and technology rather than from the transfer of Sprint workers to Ericsson.
Under the deal, Sprint, the No. 3 U.S. mobile service, will keep full ownership and control of its network assets and continue to make network investment and strategy decisions itself. As a result, it said it is retaining about 2,000 employees to work on network related issues.
Pacific Crest analyst analyst Steve Clement said investors should look for more information about savings before having any cause for celebration.
I don't think customers will notice it. For investors it will depend on the savings they get from the deal, he said.
The fact that it's Ericsson's first U.S. network management deal, Clement said, may mean less savings for Sprint than some would have hoped. He cited investor expectations for network management savings of about 20 percent.
I don't think this type of deal will even approach that, he said.
Sprint and Ericsson said the agreement would not result in an workforce reductions as the transferred employees would become part of an Ericsson subsidiary based in Overland Park, Kansas, where Sprint's headquarters is located.
The job transfers are expected to occur late in the current quarter.
Kulbinder Garcha, a Credit Suisse analyst, said, I think strategically it's an important deal (for Ericsson) -- it's the first services deal in the U.S. and the first with a CDMA carrier, Garcha said. CDMA is the wireless technology Sprint uses.
He said that there were also question marks on how the deal would affect Ericsson's margins in the short term as it was obviously competitively priced and Ericsson was take on 6,000 employees from Sprint.
The question we all have is what impact this has on Ericsson's profitability in the second half of this year and next year, Garcha said.
Sprint shares rose 15 cents, or almost 4 percent, to $4.45 on the New York Stock Exchange. Ericsson's U.S. shares were up 7 cents, or less than 1 percent, on the Nasdaq at $9.43. (Reporting by Sinead Carew; Editing by Derek Caney and Steve Orlofsky)