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August 27, 1999
Dow Jones Newswires
AT&T Wireless Revamps Buying, Ericsson
Loses Top Status
By SHAWN YOUNG
NEW YORK -- AT&T Wireless needs to get on top of a tidal wave of
demand and bolster its network to accommodate still more wireless phone
use, so it has dramatically changed its relationships with its suppliers.
The wireless unit of AT&T Corp. (T), which is the nation's largest wireless
phone company, said Friday it is dividing its buying between Lucent
Technologies Inc. (LU), Nortel Networks Corp. (NT) and L.M. Ericsson
Telephone Co. (ERICY).
The decision is a victory for Lucent and Nortel and a blow to Ericsson,
which had been AT&T's dominant supplier. Lucent was a distant second,
with Nortel a far-distant third, AT&T officials said.
Now Lucent and Nortel will replace Ericsson equipment in key markets on
both coasts. Ericsson will remain the top supplier in the South and
Southeast, leaving it with about a third of AT&T Wireless' network
business.
"We felt it was in our best interest to balance our suppliers," AT&T
Wireless Chief Executive Dan Hesse told Dow Jones Newswires. "Too
much reliance on one supplier was a high-risk scenario."
The growth of AT&T Wireless after it unveiled its wildly popular flat-fee
Digital One Rate plan last May outstripped even the most optimistic of
forecasts.
Ericsson had trouble keeping up with AT&T's needs, said Ericsson
spokeswoman Kathy Egan.
"We understand our customer's decision," Egan said. "It is based on their
explosive growth."
"We still have one third of a growing business," she said.
AT&T Wireless is Ericsson's largest customer in the Northern Hemisphere
and one of the Swedish company's top 10 customers, Egan said. Still,
AT&T accounts for less than 2% of Ericsson's overall revenue, she said.
The company, which has been struggling with market share losses, high
costs and reorganization, does not expect a significant revenue hit from the
loss of its status with AT&T Wireless. Egan said the impact will be
"negligible" in the short term, with growth making up for the loss of its
dominance in the longer term.
Ericsson's American depositary receipts fell 15/16, or 2.8%, Friday to
close at 32 3/8 on volume of 7.6 million shares, compared with a daily
average of 4 million.
With three top suppliers feeding equipment into the network at a rapid
pace, AT&T Wireless plans to install enough equipment to accommodate
more surges in demand like the one that followed One Rate, said Hesse,
the chief executive.
"I intend to keep being an innovator in this business," Hesse said. "Let's say
I launch a new rate plan and it takes off like gangbusters, I'll already have
the equipment there. All I'll have to do is turn it on."
Analysts have speculated that limits on capacity have kept AT&T from
expanding Digital One into lower price ranges or adding to its already
aggressive marketing plans.
Wireless has been a stellar source of revenue growth for AT&T, which
plans to spend $2 billion on the wireless network this year. The new
supplier hierarchy is expected to save AT&T $900 million over four years,
Hesse said.
AT&T has been working madly to add capacity, especially in the New
York market, where service suffered notably as power users snapped up
the One Rate offer amidst an overall surge in wireless use.
Lucent, Murray Hill, N.J., has the exclusive contract for New York and
will be the dominant supplier in the Northeast. The arrangement follows a
$1 billion deal with AT&T Wireless in March that spread Lucent
equipment to various parts of the country.
"The opportunity to do the work in New York is something we're very
excited about. It really can be a showcase for us," said Bill Wiberg,
president of the Lucent unit in charge of equipment for two of the leading
wireless technologies.
AT&T Wireless has already added the equivalent of an entire network for
Minneapolis or Seattle to the New York network and plans to add another
whole city's worth of gear in New York by the end of the year.
"We have really put a full court press on New York," said Hesse. Service
has improved substantially and is now as reliable as it was before One
Rate, but "we're still not even close to being satisfied," Hesse said.
On the West Coast, Nortel will be the leading supplier.
"We have been doing a very little bit of business with AT&T," Chief
Executive John Roth told Dow Jones Newswires. "This is the first contract
of real size."
"It will be noticeable on the top line," Roth said.
Both companies will begin adding equipment almost immediately and will
recognize revenue from the new contracts by the end of 1999. Lucent is on
a fiscal year, so revenue will begin to show up in its first fiscal quarter.
Lucent and Nortel, which also are important suppliers to AT&T's wireline
business, both say they are ready to sprint into action on the huge orders.
Both companies are top suppliers to wireless carriers already and can
rapidly dispatch people and equipment, they said.
"We have an army," said Wiberg.
Both carriers will replace Ericsson equipment with their own, but the
Ericsson gear will not go to waste, Hesse said. It will be moved to the
South, where Ericsson is to remain dominant. Demand there is intense, too,
Hesse said.
"I can use all of our existing equipment," he said.
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