Sprint Takes $1.1 Billion Leap Into Future

Sprint is taking on a $1.1 billion gamble with its
announcement Monday to let Nortel Networks upgrade their
local telephone network to provide asynchronous transfer mode (ATM) packet
switching technology, opening up the door to high-quality, data-reliant
Internet services.

It’s an apparent shift in strategy, as Sprint gives up on one telecommunications initiative in favor of another.

The company’s local and long-distance entity, which has seen much of its
revenues disappear under its feet the past few years, is pinning its hopes
on providing lucrative broadband data services to businesses and small
enterprises next year.

These services include providing next-generation applications like voice
and video over IP conferencing, virtual private networking (VPN) and
digital subscriber line (DSL) service, bundled with its existing local
telephone service.

According to Mike Fuller, Sprint local telecommunications division
president, the Nortel equipment frees up Sprint’s 8.3 million access lines
to a significantly larger number of connections at one time, allowing the
carrier to carry more traffic (i.e., paying customers) on its network.

“Packetization not only makes the network simpler and more cost-effective,
it also opens the door to new services that can be run across existing
telephone lines,” Fuller said. “The conversion from the existing switched
network to a packet switched network over the next eight years provides
Sprint with product and service capabilities that will enable us to be even
more competitive in the ever-changing telecommunications marketplace.”

The first phase of its evolution begins January, 2003, when roughly 3.6
million of its access lines are converted to Nortel’s line of softswitches
and gateways. The four-year project is expected to begin in the fourth
quarter of 2001, when Nortel starts shipping out equipment.

Sprint expects to begin selling the high-speed services to its customer
base sometime in 2002 to select markets as it begins its heavy-duty
conversion process in 2003, when Nortel starts shipping the equipment

Digital circuit switching, the network protocol used by Sprint today, is a
quickly vanishing breed of technology when compared to packet switching.

Circuit switching, while providing a rock-solid connection between two
points, ties up that one telephone line exclusively for the extent of the
connection. Packet switching, on the other hand, allows information to
travel in packets, allowing users to get away with a simultaneous telephone
and data connection.

Carriers have been loath to incorporate the new technology into their
networks, since packet-switching is inherently less reliable than circuit
switching. But recent advances in gateway and softswitch technologies have
opened the door to a “constant” packet-switched network that won’t drop
essential data and bring down the cost to do business, said Frank Dunn,
Nortel president and chief executive officer.

“This will position Sprint to offer — more cost-effectively than ever
before — all of the high-quality residential and business telephone
services its customers have come to expect,” Dunn said. “In addition, it
will enable Sprint to offer its high-speed Internet services to more people
than ever before, and to establish a foundation for delivery of future
services like desktop video conferencing and video caller ID.”

Sprint has long been known as a long-distance carrier, one of the giants in
the field with competitors like AT&T . But dwindling market
share in the sector as competitors waged pricing wars to bring pricing down
caused many to look for different profit-generating activities.

As early as last year, Sprint’s FON Group decided to back away from long-distance and focus on data services
like DSL and VOIP.

It’s been a painful process culminating in their third quarter 2001
performance announced Oct. 17. Revenues slid down 36 percent from the
previous quarter and the carrier was forced to cut 6,000 jobs.

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