(Bloomberg) -- Ericsson AB won a $14 billion contract to modernize AT&T Inc.’s wireless network, agreeing to build an open network that can be supplied by a number of vendors and beating out its longtime rival Nokia Oyj.
The contract, which will let AT&T choose vendors that supply its antennas and infrastructure going forward instead of locking the US carrier into a single relationship, marks a “strategic industry shift,” Ericsson, based in Stockholm, said in a statement Monday. The funds will be paid out over five years and focus on upgrading AT&T’s infrastructure for 5G technology.
It was a major blow to Finnish rival Nokia, whose shares tumbled 5.9% on Tuesday in Helsinki trading. The company said the news will delay its plans to reach double-digit operating margins by as much as two years. Ericsson currently supplies two-thirds of AT&T’s network and Nokia accounts for the other third. Shares of Ericsson rose 6.1% in Stockholm trading.
What Bloomberg Intelligence Says:
Ericsson’s belated but bold move to embrace open radio access network (RAN) technology looks to be paying an early dividend thanks to a new contract with AT&T that could be worth almost $14 billion over five years. The win, edging out Nokia, could help ease investor concerns over a sluggish sales trend. Still, the multi-vendor nature of the deal might pressure margins
—BI Senior Industry Analyst Matthew Bloxham
The contract illustrates the contrasting fortunes for an industry challenged by low returns and a telecommunications industry reluctant to make major new investments in its networks.
Ericsson and Nokia were competing for the AT&T contract for an open radio access network, which is more cloud-friendly and allows more vendors to contribute than previous, heavily integrated solutions. AT&T’s investment comes amid a global slump in 5G spending among telecommunications operators.
The market slowdown gave AT&T an opportunity to “drive vendors into a position to move more aggressively” on open networks after a number of years of slow progress on the technology, AT&T Chief Executive Officer John Stankey said at the UBS Global Media and Communications Conference Tuesday.
Stankey added that the Ericsson contract doesn’t mean Nokia is shut out as a vendor once the new network is built. “It’s entirely possible Nokia could be one of those suppliers,” he said.
Nokia Chief Executive Officer Pekka Lundmark called AT&T’s decision “disappointing.” AT&T accounted for 5% to 8% of Nokia’s Mobile Networks net sales so far this year.
Western interest in OpenRAN was fueled after governments moved to ban Chinese giant Huawei Technologies Co. infrastructure and sought to promote a more competitive mobile technology ecosystem beyond the two Scandinavian firms.
“The announcement shows that Ericsson’s market-leading technology and expertise are crucial in the shift to OpenRAN,” Cevian Capital AB managing partner Christer Gardell said. “An important step for Ericsson’s long-term growth.”
The open architecture model allows more flexibility in the network, Chris Sambar, executive vice president of AT&T Network, said in an interview. “You get more creativity.”
Having a number of suppliers can boost flexibility, lower costs and avoid reliance on non-US vendors classified as security risks such as Huawei, according to US officials.
AT&T, America’s No. 3 mobile provider, said the new network will let it “quickly capitalize on the next generation of wireless technology.” Benefits include lower-power, sustainable networks with higher performance, the company said in its statement.
--With assistance from Henry Ren.
(Updates with comments from AT&T CEO in sixth paragraph.)
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