AT&T rethinks its relationship with networking vendors

Does AT&T's Domain Supplier programme mark a nod to the past when carriers were vertically integrated?

 “We’ll go with only two players [per domain] and there will be a lot more collaboration.”

 Tim Harden, AT&T

AT&T has changed the way it selects equipment suppliers for its core network. The development will result in the U.S. operator working more closely with vendors, and could spark industry consolidation. Indeed, AT&T claims the programme has already led to acquisitions as vendors broaden their portfolios.

The Domain Supplier programme was conjured up to ensure the financial health of AT&T’s suppliers as the operator upgrades its network to all-IP.

By working closely with a select group of system vendors, AT&T will gain equipment tailored to its requirements while shortening the time it takes to launch new services. In return, vendors can focus their R&D spending by seeing early the operator’s roadmap.  

“This is a significant change to what we do today,” says Tim Harden, president, supply chain and fleet operations at AT&T. Currently AT&T, like the majority of operators, issues a request-for-proposal (RFP) before getting responses from six to ten vendors typically. A select few are taken into the operator’s labs where the winning vendor is chosen.

With the new programme, AT&T will work with players it has already chosen.  “We’ll go with only two players [per domain] and there will be a lot more collaboration,” says Harden. “We’ll bring them into the labs and go through certification and IT issues.”  Most importantly, operator and vendor will “interlock roadmaps”, he says.

The ramifications of AT&T’s programme could be far-reaching.  The promotion of several broad-portfolio equipment suppliers into an operator’s inner circle promises them a technological edge, especially if the working model is embraced by other leading operators.  

The development is also likely to lead to consolidation. Equipment start-ups will have to partner with domain suppliers if they wish to be used in AT&T’s network, or a domain supplier may decide to bring the technology in-house.  

Meanwhile, selling to domain supplier vendors becomes even more important for optical component and chip suppliers.

Domain suppliers begin to emerge

AT&T first started work on the programme 18 months ago.  “AT&T is on a five-year journey to an all-IP network and there was a concern about the health of the [vendor] community to help us make that transition, what with the bankruptcy of Nortel,” says Harden. The Domain Supplier programme represents 30 percent of the operator’s capital expenditure.

The operator began by grouping technologies. Initially 14 domains were identified before the list was refined to eight. The domains were not detailed by Harden but he did cite two: wireless access, and radio access including the packet core.  

For each domain, two players will be chosen. “If you look at the players, all have strengths in all eight [domains],” says Harden.

AT&T has been discussing its R&D plans with the vendors, and where they have gaps in their portfolios. “You have seen the results [of such discussions] being acted out in recent weeks and months,” says Harden, who did not name particular deals.

In October Cisco Systems announced it planned to acquire IP-based mobile infrastructure provider Starent Networks, while Tellabs is to acquire WiChorus, a maker of wireless packet core infrastructure products. "We are not at liberty to discuss specifics about our customer AT&T,” says a Tellabs spokesperson. Cisco has still to respond.

Harden dismisses the suggestion that its programme will lead to vendors pursuing too narrow a focus. Vendors will be involved in a longer term relationship – five years rather than two or three common with RFPs, and vendors will have an opportunity to earn back their R&D spending. “They will get to market faster while we get to revenue faster,” he says.

The operator is also keen to stress that there is no guarantee of business for a vendor selected as a domain supplier.  Two are chosen for each domain to ensure competition.  If a domain supplier continues to meet AT&T’s roadmap and has the best solution, it can expect to win business.  Harden stresses that AT&T does not require a second-supplier arrangement here.

In September AT&T selected Ericsson as one of the domain suppliers for wireline access, while suppliers for radio access Long Term Evolution (LTE) cellular will be announced in 2010.