Sprint bets on IBM to boost profits; more service provider outsourcing deals expected by mid-year

Sprint bets on IBM to boost profits; more service provider outsourcing deals expected by mid-year

Al Senia

Outsourcing suddenly has moved to the front burner for service providers seeking to improve customer service and kick-start new business opportunities.

Sprint’s recent decision to tap IBM for management of key customer service functions such as call routing, call handling and first-call resolution is a wake-up call for competitors weighing similar strategic moves. And that call could turn into a screeching alarm later this year if IBM, as expected, cuts new outsourcing alliances with additional European or American service providers. The Sprint-IBM deal includes some cross-sales arrangements designed to boost the profits of both firms.

There could be much more to come. “We don’t think by any means that this (outsourcing concept) is played out,” says Lawrence Kenny, global telecommunications partner for IBM Business Consulting Services. “The industry’s future growth outlook is significantly below what it was a few years ago. Companies have to look at non-traditional ways to lower their cost structures.”

MOBILE ENTERPRISE

The five-year, Sprint-IBM agreement is projected to save Sprint $550 million and bolster customer service during the next three years. Under the deal, IBM takes over management of Sprint’s existing vendor-operated call centers and assumes management of Sprint’s Nashville, Tenn.-based call center.

The agreement also includes the forging of a long-term business alliance under which IBM becomes a vendor supplier of integrated wireless and wireline services for Sprint. In return, IBM will bolster Sprint’s sales by incorporating its national PCS wireless service–and voice and data products and services–into customized solutions for IBM’s own enterprise business customer base.

Essentially, Sprint is embracing IBM’s Service Provider Delivery Environment (SPDE), an open standards-based framework that will lead to the introduction of new voice, text and Internet-based services to solution provider enterprise business customers. This allows large business customers to port their desktop environments to portable wireless devices. Sprint is kicking $100 million into SPDE, and it makes Sprint the first U.S.-based service provider to adopt SPDE on such a grand scale.

Despite the promise of a grand financial payoff, the agreement represents substantial risks for both sides. IBM’s business consulting unit must meet stringent performance criteria to receive steady, guaranteed payments under the contract. And Sprint, which admits that its customer service image already is tarnished, is essentially giving up control of key elements of its customer footprint. Furthermore, the fact that Sprint and IBM executives will sit on a board that supervises the outsourcing arrangement could either easily resolve tangles–or set the stage for a clash of rigid corporate cultures.

STRATEGIC ALLIANCES

Still, the agreement, which follows a similar though less inclusive arrangement IBM reached with Nortel several years ago, is viewed as a precedent that could prod the rest of the telecom industry to follow suit and lead to the creation of significant business alliances between service providers and integrators such as IBM and competitors such as Hewlett-Packard, Electronic Data Systems and others.

“This industry is at a point in its life cycle where outsourcing business functions to vendors like IBM has a lot of appeal to some solution providers because it is a way of more effectively managing operating expenses,” says Scott Donahue, OSS Analyst with Stratecast Partners, a division of research firm Frost & Sullivan. “IBM is saying ‘we can manage the IT infrastructure more efficiently than Sprint does’. But it is very difficult to get it right.”

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