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Sprint Scraps Major IT Outsourcing Deal With IBM

Sprint is bringing back work and employees it gave to IBM under a $400 million outsourcing pact and redoing its multibillion-dollar call center deal with the IT services firm.

Paul McDougall

January 26, 2006

3 Min Read

Wireless and long distance service provider Sprint Nextel Corp. is quietly pulling back much of the IT work it outsourced to IBM two years ago under a $400 million deal and is also reviewing a multibillion-dollar customer service support contract it holds with the computer services giant, InformationWeek has learned.

A Sprint Nextel spokesman confirmed that a revised agreement has been signed, but not publicly announced. The contracts in question were signed prior to the merger last year of Sprint and Nextel Communications Inc.

Sprint is also rehiring a number of tech workers that were "rebadged" to IBM under a technology outsourcing deal signed in 2004, according to an IBM insider. "The Sprint workers who were sold to IBM two years ago and went through job cuts and offshoring are now going back to Sprint," says the source, who has knowledge of the discussions between Sprint and IBM.

IT executives at Sprint Nextel may be looking to keep more of the company's technology work under its own roof and closer to home. IBM is moving more and more of the work it performs on behalf of outsourcing customers to low-cost countries like India and China.

Sprint outsourced application development, maintenance, and related IT work to IBM under a sweeping five-year, $400 million deal signed in 2004. Sprint's CIO at the time, Michael Stout, heralded the agreement as a way for Sprint to "focus on areas of growth and innovation."

That same year, Sprint handed much of its call center-based customer support to IBM under what Sprint at the time called a "multibillion-dollar" agreement. More specific financial details weren't disclosed. About 4,500 call center workers transferred to IBM as part of that arrangement.

Sprint Nextel's review of its IT and customer service contracts are no doubt related to post-merger economic realities and executive-level politics. The top tech job at Sprint Nextel is held by CIO Richard LeFave, who comes from Nextel. The IBM contracts were led by former Sprint CIO Stout, who's no longer with the company.

It's not unheard of for CIOs to cancel or radically alter contracts inherited through a merger. Former Bank One CIO Austin Adams terminated a $5 billion outsourcing deal between J.P. Morgan Chase and IBM after Bank One and Chase merged in 2004 and Adams became CIO of the combined companies.

LeFave wasn't available for comment. In an E-mail, a Sprint Nextel spokesman says the company has forged a new IT services deal with IBM that's "a restructuring of the previous agreement that Sprint and IBM announced in 2004." The spokesman said IBM would continue to handle some application development and maintenance work for the company. It's unclear which specific IT tasks handed over to IBM are moving back to Sprint Nextel, but the communications company will "retain full application ownership, including full life-cycle management, architecture, system analysis and design," the E-mail said. The spokesman didn't provide financial details of the new pact. The new contract was signed late last year, according to a source.

As for the call center contract, which is significantly larger than the IT services deal, the spokesman, also in an E-mail, said, "Sprint Nextel is in the final stages of amending existing agreements with IBM for support of Sprint Nextel's customer care services. Until the agreements are finalized, we have no additional details to share." An IBM spokesman would say only that IBM "looks forward to a continuing and growing relationship with Sprint Nextel."

About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

Paul McDougall is a former editor for InformationWeek.

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