AT&T
stock was climbing Tuesday after the telecommunications company said it has reached a deal with Swedish rival
Ericsson
to buy up to $14 billion worth of network equipment over five years.
In morning trading, AT&T shares were up 2.7% and American depositary receipts of Ericsson were up 4.3%.
The agreement is part of AT&T’s effort to build out a commercial-scale open radio access (RAN) network beginning next year. Open RAN technology allows telecom companies to create networks using equipment from a variety of suppliers.
“With this collaboration, we will open up radio access networks, drive innovation, spur competition and connect more Americans with 5G and fiber,” said Chris Sambar, executive vice president of AT&T Network, in a statement.
For analysts at New Street Research, the major focus will be on whether the plan disrupts AT&T’s forecast of a drop in capital expenditure, to $21.5 billion next year from $23.8 billion this year.
“The drop in capex was expected to feed a very necessary reduction in debt over the next couple of years,” New Street’s Jonathan Chaplin wrote in a research note.
AT&T noted expected spending under the Ericsson contract is below what it has forecast for wireless capital expenditure over the next five years.
“This could be the largest ORAN deployment we have seen, and is generally a way to attempt to cut costs for telecom equipment while maintaining deployment speed and increasing flexibility,” wrote KeyBanc analyst Brandon Nispel in a research note.
The agreement was relatively neutral for AT&T, Nispel said, with rivals
Verizon Communications
and
T-Mobile US
also pursuing Open RAN plans for their networks.
However, the deal is more consequential for Finnish equipment supplier
Nokia,
which faces its equipment being replaced by Ericsson’s. Nokia ADRs were down 4.1%.
Nokia said the loss of businesses would delay its push for double-digit operating margins in its Mobile Networks business by two years. AT&T has accounted for 5% to 8% of Nokia’s Mobile Networks net sales so far this year.
“We will be evolving away over a period of 2-3 years from supporting AT&T in one area of our relationship. The expected revenue from these specific activities will gradually decrease over the next 2-3 years,” Nokia said in a statement.
Nokia said it remains committed to Open RAN technology and AT&T had confirmed the decision was due to company-specific circumstances.
Both Ericsson and Nokia have repeatedly cautioned about an uncertain picture for mobile network spending this year. In October, Nokia said it would lay off 9,000 to 14,000 employees.
Write to Adam Clark at [email protected]
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