In a radical move that could redefine the sector dynamics, AT&T Inc. (T Quick QuoteT - Free Report) has inked a five-year contract with Ericsson (ERIC Quick QuoteERIC - Free Report) to modernize its network infrastructure. The deal, worth about $14 billion, will replace Nokia Corporation (NOK Quick QuoteNOK - Free Report) , which once accounted for one-third of AT&T’s business, as one of the leading vendors of the carrier. With Nokia falling down the pecking order and losing out on significant revenue-generating opportunities, share prices dipped drastically as investors began to fret about the ominous signs for the firm.

AT&T intends to leverage Ericsson technology to deploy commercial-scale open radio access network (Open RAN) across the country to help build a more robust ecosystem of network infrastructure providers and suppliers. The Open RAN architecture facilitates healthy competition among vendors for the supply of essential components and reduces dependence on a single manufacturer. It is likely to offer more flexibility, lower costs and help develop novel ideas to monetize the network. In addition, it will thwart security risks by avoiding reliance on non-U.S. vendors such as Huawei Technologies Co.

For Ericsson, the deal marks a remarkable achievement to outdo its rival by embracing Open RAN technology to help create an open, agile, programmable wireless network. The company had earlier accounted for about two-thirds of AT&T’s U.S. network. The revitalized deal will aim to utilize Ericsson’s Open RAN architecture to help developers drive innovation through open and programmable networks while bringing new suppliers into the industry. This, in turn, is likely to foster modernization and competition in the U.S. wireless equipment market.

Ericsson intends to step up production in its 5G Smart factory in Lewisville, TX, to cater to the increased demand for 5G equipment for this contract. With highly automated and efficient processes, the factory is fully powered by renewable electricity, producing next-generation 5G and Advanced Antenna System radios for Ericsson's U.S. customers.

The company is reportedly the world’s largest supplier of LTE technology with a significant market share and has established a large number of LTE networks worldwide. The deal further exemplifies that Ericsson is much in demand among operators to expand network coverage and upgrade networks for higher speed and capacity.

AT&T aims to deploy Open RAN for 70% of its wireless network traffic across open-capable platforms by late 2026. The company expects to have fully integrated Open RAN sites operating in coordination with Ericsson from 2024, enabling it to move away from closed proprietary interfaces for rapid scaling and management of mixed supplier hardware at each cell site.  Beginning in 2025, the company intends to scale this Open RAN environment throughout its wireless network in coordination with multiple suppliers to establish itself as the leading player in the industry.

Although Nokia is likely to remain a key partner for AT&T within both its Network Infrastructure and Cloud and Network Services businesses, supplying products such as microwave radio links and related solutions, the move is likely to have dealt a heavy blow with massive revenue loss. The company expects revenues from AT&T in the Mobile Networks business to decrease over the next two to three years, likely delaying the timeline of achieving double-digit operating margin by up to two years. This should ring the alarm bells for the company and calls for certain corrective actions to regain its position in the industry.