AT&T (T 1.02%) is betting big on new open-source telecom equipment that it says will save it billions over time. Investors are excited about the development, sending AT&T shares up about 3% as of 11 a.m. ET Tuesday.
AT&T is ready to reboot its network
AT&T has agreed to buy upwards of $14 billion worth of hardware and services from Swedish equipment supplier Ericsson (ERIC -1.15%), part of the company's transition away from proprietary technology and toward what is known as Open and Interoperable Radio Access Network tech, or Open RAN.
The five-year agreement will shift most of AT&T's equipment spending to Ericsson and away from Nokia (NOK 0.28%), which has been AT&T's vendor of choice in the past. There's a lot of upfront costs in shifting to Ericsson gear and Open RAN, but AT&T expects it to lead to savings over time.
Open RAN standards allow for network operators like AT&T to source equipment from a number of suppliers instead of being locked into proprietary tech from just one vendor. AT&T said that over time the shift to Open RAN will allow it to work with a number of vendors including Ericsson, Corning, Dell, and Intel, resulting in more flexibility, lower costs, and a more efficient network.
AT&T plans to have 70% of its wireless network traffic flowing across Open RAN platforms by late 2026. The company is betting that by embracing the open standards, it will bring more competitors into the market and bring prices down further in the years to come.
"AT&T is taking the lead in open platform sourcing in our wireless network," AT&T Executive Vice President Chris Sambar said. "With this collaboration, we will open up radio access networks, drive innovation, spur competition, and connect more Americans with 5G and fiber."
Is AT&T a buy after its big network deal?
This is good news for AT&T, but the real stock mover to watch here is Nokia. The Finnish equipment manufacturer was down more than 4% on the news, and is now down more than 30% year to date.
Telecom companies face a constant need to invest massive amounts in their networks. If Open RAN works as promised, it could be a game-changer for AT&T, allowing it to open up more of its big-ticket purchases to real competition and benefit from any resulting price wars.
For investors already drawn to AT&T's predictable revenue streams and key position as a U.S. telecom heavyweight, the network move is just another element to the bull case for the stock.
