(Bloomberg) — Shares of Nokia Oyj. dropped as much as 10% on Tuesday after AT&T Inc. chose rival Ericsson AB to modernize its US wireless network, a project that could amount to almost $14 billion over five years.
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For Ericsson, already responsible for about two-thirds of AT&T’s US network, the deal represents a significant win over Nokia which accounted for the other third of AT&T’s business. It’s another blow to Espoo, Finland-based Nokia, which in October announced jobs cuts alongside broader struggles in its 5G infrastructure business.
Nokia was down 9.8% to €2.70 at 10:15 a.m. in Helsinki, extending a 6.5% decline on Monday. Shares of Stockholm-based Ericsson rose 8.6%.
The deal will have Ericsson build AT&T’s network with open architecture, which will let vendors compete to supply components, according to a company statement Monday. Most networks today are locked into a relationship with a single manufacturer.
The open architecture allows more flexibility in the network, Chris Sambar, executive vice president of AT&T Network, said in an interview. “You get more creativity.”
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
In a statement, Ericsson Chief Executive Officer Borje Ekholm called the deal a “strategic industry shift” adding that it will create “new ways for operators to monetize the network.”
Nokia said in a separate statement that the decision would delay the timeline of achieving double-digit operating margins by up to two years. AT&T accounted for 5% to 8% of the company’s Mobile Networks net sales so far this year. “The news from AT&T is disappointing,” Nokia Chief Executive Officer Pekka Lundmark said.
AT&T officials anticipate companies will compete to supply equipment for the network, including base stations at the foot of cell towers, antennas at the top, and connections in between, for example.
The effort will make Dallas-based AT&T a US leader in the technology, known as commercial scale open radio access network, or Open RAN, the company said.
Having a number of suppliers can boost flexibility, lower costs and avoid reliance on non-US vendors classified as security risks such as Huawei Technologies Co., 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.
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Read More:AT&T Taps Ericsson for $14 Billion Network Revamp, Ousting Nokia
2023-12-05 08:18:36