Sprint Shuts Down On-Demand Network

ION's demise is but the latest symptom of the tech spending pullback.
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Sprint's (FON) ION project is DOA.

A slowing economy and a continuing lack of customers finally spelled the end Wednesday to one of the most expensive Internet access projects in the nation. After three and a half years and $5 billion in expenses, Sprint yanked the plug on its big Net pipe plan. The project was affectionately known as integrated on-demand network, or ION.

Amassing a mere 4,000 customers, ION proved to be an extravagant money pit: Sprint spent roughly $1.25 million per ION customer. And with no foreseeable return on that investment, the telco's choice was clear. In fact, in May,

TheStreet.com

reported that

ION's days were numbered.

Sprint and other big telcos had staked ambitious growth plans on the prospect of marrying voice and data services. But now, they are recoiling at speculative spending projects such as stringing "last-mile" network access lines, as cash is scarce and survival is on the line.

Equipment spending industrywide is likely to drop between 20% and 30% next year as more projects get killed or shelved. This is unwelcome news to the big three network gearmakers,

Lucent

(LU)

,

Nortel

(NT)

and

Cisco

(CSCO) - Get Report

.

Sprint says without ION, capital spending will drop to $5.4 billion this year, down from its $6.2 billion projection going into the year.

"We are taking significant steps to reduce our cost structure and sharpen our focus on the products and services that hold the best potential for growth and return on investment," Sprint CEO William T. Esrey said in a press release.

The nation's No. 3 long-distance service provider met Wall Street's lowered third-quarter earnings expectations Wednesday, making 28 cents a share on revenue of $4.4 billion.

Sprint expects to take a $2 billion charge in the fourth quarter to exit the ION business and says, minus ION, the company will save $1 billion in costs annually.

In keeping with these telecom recessionary times, Sprint says it will cut 7,500 ION-related jobs, including 1,500 contract workers. Sprint has roughly 85,000 employees worldwide.