UPDATE 3-Ericsson to manage Sprint network in $4.5-$5bln deal

* Sprint, Ericsson in 7-year $4.5bln-$5bln network deal

* 6,000 Sprint workers to move to Ericsson in Q3

* Ericsson sees initial margin impact

* Sprint shares up 4 pct, Ericsson up 0.2 pct
(Adds analyst comment, executive comment, share price,
byline)

By Sinead Carew

NEW YORK, July 9 (Reuters) - Sprint Nextel Corp (S.N) said
it would pay Ericsson (ERICb.ST) $4.5 billion to $5 billion to
manage its network under a 7-year deal in which 6,000 Sprint
workers will move to Ericsson. Sprint shares rose 4 percent.

Sprint said it would keep full control of its network after
the deal, which is the first of its kind for a major U.S.
operator. Sweden's Ericsson said the deal would initially hurt
margins but provide "satisfactory" profits over seven years.

The No. 3 U.S mobile service provider said Ericsson would
help improve its network performance more efficiently than it
could on its own. It also plans to plow any savings from the
agreement into improving its network coverage.

"This is about improving our customer experience," Steve
Elfman, Sprint's network operations head, said on a call with
reporters on Thursday. "While we get the benefit of Ericsson's
expertise ... we can focus our attention on bringing great
devices, great services, great applications to them."

Investors will closely watch for any impact on Sprint's
network performance as the service provider has been struggling
to stem customer losses partly related to a poor reputation for
network quality that it has been working to shake off.

However, analysts said they did not expect the quality of
Sprint's wired or wireless network to suffer from the
management handover.

"If anything, I think the reverse is true," said Soleil
analyst Michael Nelson. "It actually appears that by making
this move they're attempting to strengthen the quality of the
network. There's always the potential for increased risk when
you have a deal of this magnitude but I think its minimal."

SAVINGS TO BOOST NETWORK

Pacific Crest analyst analyst Steve Clement agreed that the
move would not affect Sprint customers but said it was too
early for shareholders to celebrate. "For investors, it will
depend on the savings they get from the deal," he said.

Elfman declined to estimate savings except to say they
would come from the use of Ericsson's technology and its
massive scale as a network services company rather than the
transfer of Sprint workers to Ericsson.

Piper Jaffray analyst Chris Larsen estimated that the deal
could create savings of 10 percent to 20 percent or $100
million a year based on the mid-point of that range.

But the fact that this is Ericsson's first U.S. network
management deal, may mean less savings for Sprint than some
investors would have hoped, Clement said.

"I don't think this type of deal will even approach (20
percent)," he said.

To assuage any investor worries about a loss of control,
Sprint said it will keep full network ownership and continue to
make network investment and strategy decisions itself.

To do this it is retaining about 2,000 employees to work on
network-related issues, according to Elfman who told reporters
that it took about a year to put the deal together.

Sprint and Ericsson said the agreement would not result in
any workforce reductions because the transferred employees
would become part of an Ericsson subsidiary based in Overland
Park, Kansas, where Sprint's headquarters is located.

ERICSSON PROFIT "SATISFACTORY"

The job transfers to Ericsson Services Inc are expected to
occur late this quarter, the companies said.

While Ericsson has a lot of experience as a network manager
and already runs networks supporting about 275 million
customers, this will be its first time running a network based
on CDMA, the mobile technology used by Sprint.

"Strategically it's an important deal" for Ericsson, said
Credit Suisse analyst Kulbinder Garcha. "It's the first
services deal in the U.S. and the first with a CDMA carrier."

He said it wasn't clear how the deal would affect
Ericsson's margins in the short term as it was obviously
competitively priced and involves 6,000 new employees.

"The question we all have is what impact this has on
Ericsson's profitability in the second half of this year and
next year," Garcha said.

Jan Frykhammar, the head of Ericsson's global services
business, said he expected the deal to help Ericsson expand in
North America and that the margin impact would be short-lived.

"We only enter these projects that are profitable to us. A
partnership like this has an impact on margins initially but
over the life cycle the profitability of a deal like this is
satisfactory," Frykhammar said on an analyst conference call.

Sprint closed up 17 cents, or almost 4 percent, at $4.46 on
the New York Stock Exchange. Ericsson's U.S. shares rose 2
cents on Nasdaq at $9.43.

(Reporting by Sinead Carew in New York and Sven Nordenstam
in Stockholm; Editing by Derek Caney, Steve Orlofsky and
Richard Chang)