(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 provided by a number of vendors, beating out longtime rival Nokia Oyj.
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The contract, which will allow AT&T to choose which vendors supply it with its antennas and infrastructure rather than locking the U.S. carrier into a single relationship, represents a “strategic shift in the industry,” Ericsson said in a statement Monday. The money will be paid out over five years with a focus on upgrading AT&T’s infrastructure for 5G technology.
This was a major blow to its Finnish competitor, Nokia, whose shares fell by 10% on Tuesday in Helsinki trading. The company said the news will delay its plans to reach double-digit operating margins by up to two years. Ericsson currently powers two-thirds of AT&T’s network and Nokia accounts for the other third.
What Bloomberg Intelligence Agency says:
Ericsson’s late but bold move to embrace open Radio Access Network (RAN) technology appears to be paying early dividends thanks to a new contract with AT&T that could be worth about $14 billion over five years. The win, which beats Nokia, may help ease investors’ concerns about the sluggish sales trend. However, the multi-vendor nature of the deal may put pressure on margins
—BI Senior Industry Analyst Matthew Bloxham
The contract illustrates the contrasting fortunes of an industry facing low returns and a telecommunications industry reluctant to make major new investments in its networks. Nokia shares fell 7.9% to 2.76 euros at 12:26 pm in Helsinki, extending a 6.5% decline on Monday. Stockholm-based Ericsson shares rose 5.6%.
Ericsson and Nokia have been vying for AT&T’s contract for an open wireless access network, which is more cloud-friendly and allows more vendors to contribute than previous highly integrated solutions. AT&T’s investment comes amid a global decline in 5G spending among telecom operators.
Western interest in OpenRAN has grown after governments moved to ban Chinese giant Huawei Technologies Co.’s infrastructure and sought to foster a more competitive mobile technology ecosystem outside the two Scandinavian companies.
“This announcement shows that Ericsson’s market-leading technology and expertise are crucial to the transition to OpenRAN,” said Christer Jardel, Managing Partner of Cevian Capital AB. “This is an important step for Ericsson’s long-term growth.”
Nokia CEO Pekka Lundmark called AT&T’s decision “disappointing.” AT&T accounts for between 5% and 8% of Nokia’s net mobile network sales so far this year.
The open architecture model allows for more flexibility in the network, Chris Sambar, executive vice president of AT&T Network, said in an interview. “You get more creative.”
Having a number of suppliers can enhance flexibility, lower costs and avoid reliance on non-U.S. vendors designated as security risks such as Huawei, according to U.S. officials.
AT&T, America’s third-largest mobile phone provider, said the new network will allow it to “rapidly take advantage of the next generation of wireless technology.” The benefits include sustainable networks with lower energy and higher performance, the company said in its statement.
–With assistance from Henry Wren and Todd Shields.
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