Vodafone and Sprint pursue different approaches to cost reduction

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Vodafone and Sprint pursue different approaches to cost reduction

By CAROLINE GABRIEL

Published: 10 February, 2009

READ MORE: Sprint Nextel | Vodafone

As mobile operators look to cut their operating costs in order to withstand the recession, there is heightened interest in two options, network sharing and outsourcing, as illustrated this week by Vodafone and Sprint respectively.

Vodafone has been a trailblazer for RAN sharing in parts of Europe and in Indian, and is now turning its attention to its Australian arm. There, it has announced plans to merge its network with that of Hutchison Whampoa, to form a 50:50 joint venture called VHA (Vodafone Hutchison Australia). The unit retains the rights to both brands, though it will primarily retain the Vodafone name. To equalize the value of their businesses, Vodafone will receive a deferred payment of A$500m ($337m) from the venture.

This goes a step further than most network sharing deals, which retain separate brands and services and merely pool ownership of the RAN, but with consolidation of mobile operators widely expected in saturated market, this is a pattern that could be repeated in Europe and parts of Asia, regulators willing.

Under the VHA deal, the partners will accelerate the expansion of 3G coverage from 63% to 95% of the population (it covers 95% with GSM). The merged firm will have about 6m subscribers, or 26.3% of the market, behind Telstra's 9.5m and Optus' 7.4m. The new company is looking for cost savings across the board, including procurement, product development, networks, administration and IT, saving about A$2bn a year, net of integration costs. But it remains the smallest player and the only one without wireline networks and the potential for converged services. There is speculation that this will be the prelude to Hutchison exiting Australia altogether.

Meanwhile, Sprint Nextel is reported to be planning to outsource part of its network operations to Ericsson, following a trend that is becoming popular in India and other emerging economies, and some European countries. Sprint has been looking to cut costs radically as its customer base shrinks, cutting 8,000 jobs and closing or outsourcing some call centers. Now, according to the Kansas City Business Journal, the Kansas-based operation will transfer 7,000 Sprint staff to Ericsson, saving about $500m. Sprint is making no official comment, but former Ericsson executive Sven-Christer Nilsson joined its board last November, prompting the first talk of a 'rebadging' strategy.