Outsourcing: Telecoms Give Their Networks the Boot

Ericsson has its work cut out for it. The company will have to create a new entity to serve its first major American customer. In addition, the vendor will be taking on three networks with multiple technologies, including iDEN, with which it has little experience, says Dawson.

The rapid transition will be tricky. "[It] will be difficult to manage, with employees' contracts moving over to Ericsson, the appropriate 'Chinese walls' created between the new Ericsson employees and the rest of Sprint," Dawson says. "With all that going on, it will be difficult for those employees to continue doing their day-to-day jobs without distraction and at the same [productivity] level."

In other words, an increase in employee turnover is likely.

Other telecom companies that have signed network services outsourcing deals face similar obstacles. But Sprint has hit snags with outsourcing in the past.

"Sprint also had a bad experience with its previous large outsourcing contract ," notes Dawson-a $400 million outsourcing deal with IBM to overhaul its call centers. "That didn't really pan out the way the [two] companies planned, and Sprint ended up bringing a lot of that activity back in-house."

What does this deal mean for customers of Sprint-or others who have announced (or will announce) similar outsourcing pacts? Potential service disruption is possible in the short term. Long term, however, there could be an upside.

"Since Sprint is planning to reinvest the savings in the network and in other areas rather than simply profit taking," says Dawson, "customers may notice indirect improvements which result from the deal."

Improved service would be a welcome change for those who've complained about Sprint's poor customer service and network coverage in the past.

What U.S. carrier is next in line to outsource its network is unclear. Number-three Sprint was the ideal candidate for such a deal because it had been suffering from a lack of network scale against its major competitors, needed to cut costs, and maintained a complex set of three networks, says Dawson. Qwest operates at a similar scale and could be eyeing a network services contract, she notes.

For most other big American telecom providers, "network quality is a key differentiator in U.S. market positioning," says TPI's Mayo. But in an increasingly competitive operating environment, even those who say network management is core could consider sending that work out the door in the future.