Sprint reassessing ION

Sprint is reassessing the financial viability of its integrated, on-demand network project, ION, and may postpone the consumer and small business parts of the project, according to a report released today by Credit Suisse First Boston Analyst Dan Reingold. The portion of ION that caters to medium and large enterprises will not be affected, Reingold said.

ION, first introduced in 1998, is Sprint’s system for linking data and voice calls into a single, flexible network using softswitch technology. Sprint has reportedly spent about $2 billion on the project so far, but according to Reingold has only attracted about 2500 consumer and small business customers (served by 1400 colocations) to the platform. The company had planned to amass 6000 customers and 2,000 co-locations by the end of the year. A spokesman from Sprint would not confirm those numbers.

According to Reingold, ION’s problems involve technical difficulties such as the integration of Class 5 switching features and the “disaggregation of voice packets from data packets at the central nodes of the network. Inconsistent platform performance caused by dropped data packets has also caused an unsatisfactory number of trouble tickets into Sprint’s call centers, making it difficult to scale the project,” Reingold said in the report.

Reingold added that Sprint management has given ION’s vendors—Telcordia, Nortel Networks, Lucent Technologies and Cisco Systems—until the end of August to improve system performance. If they don’t, Sprint will postpone the commercial launch for the consumer and small business markets planned for the second half of 2001.

According to the Sprint spokesman, the carrier is experiencing some “glitches” with the technology used in the voice aspect of the network. “Sprint is in an assessment mode with ION as we move voice services from an IP protocol to an ATM platform,” the spokesman said. “Testing is ongoing and will continue into summer. By summer’s end, depending on those tests, we’ll reset our expectations for Sprint ION as needed.”

The spokesman denied that Sprint would scrap portions of the project in order to reduce the dilution on Sprint’s earnings. According to Reingold, if the ION project is curtailed, Sprint would save about 20¢ per share in the second half of this year and about 45¢ per share in 2002.

The news that Sprint was re-evaluating ION was initially disclosed during a roadshow last month for the secondary offering of Sprint shares by former GlobalOne partners France Telecom and Deutsche Telekom.