Ericsson's new strategy chief: It's all good

August 11, 2009: 12:32 PM ET

image001Douglas L. Gilstrap, newly named head of strategy for Ericsson (ERIC) doesn't start his new gig until Oct 1, but it is pretty clear the U.S.-born Gilstrap aims to push the Swedish telecom equipment maker to do more deals like the $5 billion, seven-year contract it recently inked with Overland Park, Kan.-based Sprint (S).

Gilstrap, a veteran of network operators such as Britain's Cable & Wireless, told Brainstorm Tech he thinks Ericsson has a great opportunity to help phone companies that are trying to manage lots of change: Consumer and business demand for broadband capacity continues to grow; meanwhile, operators are trying to migrate their networks to systems based on Internet Protocols and integrate and update networks they acquired over the years. The phone carriers also are looking for ways to keep their costs down.

Enter Ericsson, which has built a sizable business essentially taking over operations for wireless operators around the world. In many cases Ericsson pretty much runs the networks -- including planning and executing major upgrades and managing the employees (putting them on the Ericsson payroll) -- and the carriers simply handle retailing, marketing and customer relations. Many international carriers, including India's Bharti Airtel and Hutchison Whampoa's Three Italia, outsource their network operations.

"This is just great for Ericsson," Gilstrap says. "The operators don't have the people anymore for the 'bubble' they're facing. Ericsson's got the people, it has the global coverage. I looked at all that and I said, this is a fantastic company to join."

But no major U.S. carrier has embraced the outsourcing model -- until now. Sprint in July announced a deal in which Ericsson would assume responsibility for the carrier's day-to-day services, including provisioning and maintenance for Sprint-owned networks. Some 6,000 Sprint employees will be transferred to a new unit called Ericsson Services Inc., a wholly-owned Ericsson subsidiary based in Overland Park. And while Sprint executives have been careful to brand the deal a "service agreement," there's little question it is hiring Ericsson to run its network.

"Sprint doesn't want to call it outsourcing," says Rich Nespola, CEO of TMNG Global (TMNG), a technology management and consulting firm. "They'll call it 'network collaboration,' or use some other parlance, but a rose by any other name..."

Sprint, of course, is struggling to hold on to customers and make money. In the second quarter of this year the country's No. 3 wireless provider posted a loss of $384 million and lost 257,000 net subscribers. So it is looking for fresh ways to cut costs.  But Nespola believes other U.S. carriers, especially smaller, independent operators, may follow suit.

And what about AT&T (T) and Verizon (VZ)? Don't look for the No.1 and No. 2 operators to embrace the outsourcing model any time soon. Executives of both companies privately tell Brainstorm Tech that they think giving up network operations would mean ceding their competitive edge.

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Stephanie Mehta
Stephanie Mehta
Deputy Managing Editor , Fortune

Stephanie N. Mehta is the deputy managing editor at Fortune, overseeing technology coverage for Fortune. She also is a co-chair of the annual Brainstorm Tech conference, an annual gathering of tech and media thinkers. Previously, Mehta spent seven years as a tech writer at Fortune covering the telecom and media industries. She also has worked for the Wall Street Journal and the Virginian-Pilot in Norfolk, Va.

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