July 9 (Bloomberg) -- Sprint Nextel Corp., the third- largest U.S. wireless carrier, plans to pay Ericsson AB as much as $5 billion to manage its networks, offloading the expense of running its own systems.

About 6,000 Sprint employees will move over to Ericsson in the third quarter, the Overland Park, Kansas-based company said in a statement today. Sprint retains ownership of the networks under the terms of the seven-year agreement.

The shift may help the unprofitable carrier pare operating costs, which amounted to $8.7 billion in the first quarter. Chief Executive Officer Dan Hesse, also contending with a lengthening recession, has trimmed spending over the past year as more than 4 million contract customers fled to larger rivals, lured by Web-surfing devices like Apple Inc.’s iPhone. Sprint declined to say how much it would save under the deal.

“This will provide them additional flexibility,” BMO Capital analyst Peter Rhamey said in an interview. “The economy is working against demand for many services -- that’s their major issue. This addresses some of the cost issues.” The Toronto-based analyst rates Sprint “market perform.”

Sprint rose 17 cents, or 4 percent, to $4.46 at 4 p.m. in New York Stock Exchange composite trading. The stock has more than doubled this year.

Hesse, who took over in 2007, had planned about 8,000 job cuts this year to compensate for the dwindling subscriber base. Those cuts, coupled with the workforce shift to Ericsson, will contribute to Sprint’s goal of reducing labor expenses by $1.2 billion.

Shirt Colors

The fees paid to Ericsson probably cancel out most of the savings from moving the employees, according to analysts including Steve Clement at Pacific Crest Securities Inc. and Craig Moffett at Sanford C. Bernstein & Co.

“It’s not clear that you’re going to save any money by changing the color of somebody’s shirt,” said New York-based Moffett. “They’re paying Ericsson for them instead of paying themselves.”

Last year, Sprint spent $16.7 billion on costs to offer services and products, including expenses to operate and maintain networks and pay employees, rent and utilities, according to a regulatory filing.

The real advantage of the deal may be that it frees Sprint to focus on customer service and rolling out new products, Portland-based Clement said.

Sales Declines

Analysts on average predict Sprint’s sales dropped 10 percent in the second quarter from a year ago, according to a Bloomberg survey. The carrier is scheduled to report results at the end of the month.

Sprint has attempted to woo customers away from AT&T Inc., the exclusive U.S. service provider for the iPhone, and Verizon Wireless by introducing new devices such as Palm Inc.’s Pre. Sprint has exclusive rights to sell the touch-screen phone, which can run multiple applications at once, through at least the end of the year. Sprint has probably sold as many as 200,000 of the devices since their debut last month, according to Morgan Keegan & Co. analyst Tavis McCourt in Nashville, Tennessee.

The carrier had about $4.5 billion in cash and cash equivalents at the end of March. The new contract also will let Sprint avoid investing in technology to improve its network, allowing executives to focus on customer service and rolling out new products, said Steve Elfman, president of networks.

Keep Improving

“We’ll benefit from the current scale and efficiency and expertise of Ericsson, and this will keep improving over time,” Elfman said in a call with reporters today. He declined to be more specific about the savings.

Ericsson, based in Stockholm, will manage and maintain both wireless and wireline systems for Sprint, including the iDEN push-to-talk network. The company will operate through a unit based in Overland Park, keeping the jobs in the U.S.

The Swedish company, the world’s largest maker of wireless networks, has focused on boosting sales from managed services because they provide a steadier revenue stream as the contracts typically run over several years. Ericsson’s managed services sales jumped 34 percent to 4.2 billion kronor ($540 million) in the first quarter.

Last month, Ericsson won a five-year extension of its contract to manage the high-speed network of Hutchison Whampoa Ltd.’s 3 Italia unit.

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: July 9, 2009 16:02 EDT