VimpelCom Signs with Ericsson

LM Ericsson (ERIC - Analyst Report) received a five-year managed services contract from VimpelCom, one of the leading integrated telecommunications services operators. As per the terms of the agreement, Ericsson will manage network operations at about 10,000 sites on behalf of VimpelCom.

Ericsson will also look after more than 10,000 km of optical transport cables and an extensive fixed network across Siberia and the Urals in Russia. In addition, Ericsson will be responsible for network operations and field maintenance for active and passive network components for VimpelCom’s mobile, fixed and transport networks. The financial terms of the contract were not disclosed.

The contract is a win-win situation for both Ericsson and VimpelCom, as the contract perfectly complements the long-term objectives of VimpelCom to increase operating efficiency by reducing costs. While Ericsson looks to expand its services segment operations in Russia, which is one of the growth markets for Ericsson.

As per the terms of the new contract, about 400 personnel of VimpelCom will be deployed with Ericsson by Apr 2013. Given the expertise of Ericsson in the extended network service and support, VimpelCom is confident that the agreement will maximize its focus on business development and improve the quality of services for customers coupled with additional quality services.

Outsourcing of the managed services contract has become a standard practice for the telecom operators in order to improve efficiency and reduce costs. Recently, Ericsson signed a $1 billion managed services contract with Reliance Communication in India to operate and manage the Wireline and wireless networks in the Northern and Western States of India.

During the last reported quarter (4Q12), Ericsson’s Global Services segment, which primarily deals with the managed services contracts, reported revenue growth of 4% year over year and 15% sequentially. The year-over-year increase was driven by Managed Services and Consulting and Systems Integration.

Ericsson currently has a Zacks Rank #2 and its rivals in the Wireless Equipment such as Aviat Networks (AVNW - Snapshot Report) has a Zacks Rank #1 while the rest such as Juniper Networks (JNPR - Analyst Report) and Qualcomm Inc. (QCOM - Analyst Report) have Zacks Rank #2.