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Ericsson has scored a significant victory over rival Nokia after US giant AT&T selected the Swedish group for the rollout of a new kind of 5G network, in a deal that will shake up the equipment supply chain in the world’s biggest telecoms market.
AT&T announced a tie-up that it said could be worth up to $14bn to develop “open RAN” networks — that allows them to chop and change components and use a wider variety of companies — with kit from Ericsson, as well as Japan’s Fujitsu. The Dallas-headquartered company wants 70 per cent of its wireless network traffic to flow across what it terms “open-capable platforms” by late 2026.
The news, announced late on Monday, pushed shares in Ericsson up more than 9 per cent on Tuesday morning while Nokia’s fell almost 9 per cent.
Traditional mobile networks rely on radio access equipment that tightly bundles proprietary hardware with software provided by the biggest groups while open RAN systems allow networks to use different companies for different parts.
It was intended to boost competitiveness by helping access for smaller companies but Ericsson has emerged as one of the dominant suppliers.
Analysts at Citi said the move was “a significant announcement, for Ericsson, AT&T, Nokia and the industry”.
“The mobile industry’s move towards open interfaces between key elements of infrastructure, namely open RAN, has been a halting one . . . until now!” they said. “We view this announcement as a clear positive for Ericsson, as it becomes the first truly global vendor to deploy open RAN with a major operator into an existing network.”
Although there have been efforts to roll out open RAN technology elsewhere, they added the deal was particularly significant as the US is the biggest market for telecom equipment and AT&T the largest spender within it.
Nokia warned the move would delay its plan to reach double-digit operating margins in its mobile networks division by up to two years and that revenue from AT&T, which accounts for 5 to 8 per cent of its net sales for this segment, would decrease in this period.
However, the Finnish group added its cost-cutting programme was expected to “partially mitigate” the impact of the US company’s decision. The telecoms equipment maker in October announced it would cut up to 14,000 jobs as part of a target to save up to €1.2bn by 2026.
Its third-quarter sales fell by a fifth to €5bn, with higher interest rates and slower global growth prompting its customers to retrench, the company said at the time.
AT&T said the move would “help build a more robust ecosystem of network infrastructure providers and suppliers”. The group, which is in the midst of a restructuring, said increased competition would lead to more innovation and help lower network costs.
Source: Financial Times