Calculate AT&T Transitioning Cost from Nokia to Ericsson

AT&T partially attributed its lower than expected 2024 profit forecast to its plan to remove Nokia’s devices from its network and replace them with Nokia’s competitor Ericsson’s 5G devices.
Specifically, AT&T stated that the write down of Nokia devices will result in a 17 cent decrease in its annual earnings per share (EPS). Overall, AT&T stated that it expects adjusted earnings per share to be between $2.15 and $2.25 in 2024, which is lower than analyst expectations of $2.46, according to Reuters.
Pascal Desroches, Chief Financial Officer of AT&T, explained in a quarterly conference call on Wednesday, “Our full year forecast reflects a non cash headwind. He stated that some unfavorable factors will come from” accelerated depreciation of Nokia assets affected by the open RAN transformation, and we expect this impact to continue from 2026. “

This is not surprising. Desroches stated in December last year, “We will shorten the lifespan of Nokia devices because we will replace them with Ericsson. This will result in some increase in non cash depreciation next year.” However, he did not specify the extent of depreciation at that time.
In its fourth quarter earnings report released on Wednesday, AT&T disclosed other factors affecting its 2024 profit forecast. These factors include pension and post retirement benefits costs, lower capitalized interest, and lower adjusted equity income from AT&T DirecTV investments. But all these factors add up to only 15 cents per share, which is lower than the price at which AT&T acquired Nokia devices at 17 cents per share.
John Stankey, CEO of AT&T, stated that at the end of last year, AT&T signed a five-year, $14 billion agreement with Ericsson, and there was a reason to switch from Nokia to Ericsson. He did not specifically name Ericsson, but stated that AT&T enjoys “the supplier environment we see in the wireless field, where someone comes in to change pricing and we gain higher efficiency from it.”
Stankey also stated that AT&T’s shift towards open RAN (O-RAN) through cooperation with Ericsson will help operators reduce expenses in the long term.
He explained during AT&T’s financial report conference call: The fact that we are turning to O-RAN will provide us with another way to manage some of our future capital intensity. It will not allow us to reach different historical investment levels, but it will become one of the tools we use to manage the capital investment portfolio between fixed and mobile services, to drive the kind of returns we need to drive. We will gain more tools from our O-RAN investments and more in our wireless networks Efficient ways to meet our capacity growth needs.”

So what is Ericsson’s economic situation? “This is the largest contract in Ericsson’s history,” said Fredrik Jejdling, Ericsson’s network manager. According to Ericsson’s latest financial report, it will not bring any “meaningful” increase to Ericsson’s revenue until the second half of this year.
The agreement between AT&T and Ericsson also led Fujitsu in Japan to join Ericsson and provide wireless services for AT&T’s 5G network. However, the scale of the role played by Fujitsu in it is still unclear. Ericsson’s Jejdling explained, “It depends on what type of device AT&T will ultimately purchase for an open RAN network.”
AT&T mentioned in its fourth quarter earnings report that it added a total of 526000 net postpaid telephone customers, which is widely considered the most valuable type of wireless customer. Considering the net increase of 318000 post paid phone users announced by Verizon the day before, this number is worth noting. These data are generally higher than most analysts’ expectations.
The financial analyst at New Street Research wrote in a report to investors on Wednesday after AT&T released its financial report: “After Verizon’s big victory yesterday, investors have been asking who will lose. We are very certain that it is not AT&T…. We are also very certain that it is not T-Mobile. We are very certain that it is not Comcast, considering their level of understanding of this product before the end of the year. Our basic prediction is that the growth rate of the post payment market is faster than expected.”
T-Mobile and Comcast have not yet released their fourth quarter results.
AT&T’s Stankey stated that the sustained growth of the wireless post payment industry in the United States will continue until 2025. Specifically, he stated that industry growth is “at a more normal level”. This means that the overall wireless industry in the United States will continue to grow at a faster pace than before, rather than slowing down sharply as many analysts have anticipated.
Finally, the CEO of AT&T also stated that they will seek price increases like Verizon and other operators.
Stankey mentioned in his response to a question about possible price increases, “The value that AT&T provides to its customers allows us to enter… of course, it will also bring some returns to the investments we invest. I expect we will have to do this in 2024.”