ALU, Ericsson continue LTE momentum with AT&T win

Alcatel-Lucent (NYSE:ALU) and Ericsson (NASDAQ:ERIC) have clearly emerged as the dominant long-term evolution (LTE) suppliers in the US. With AT&T’s (NYSE:T) announcement today that the two vendors will build its 4G radio network, Ericsson and Alcatel-Lucent both share the contracts for the two major nationwide LTE builds in the US and two of largest announced 4G rollouts in the world.

“This strengthens our position with a very important customer and generates more LTE momentum for us,” said Arun Bhikshesvaran, Ericsson North America senior vice president of multimedia and infrastructure solutions. “This is very significant for us.”

The selection of Alcatel-Lucent and Ericsson, though by no means fore-ordained, isn’t a big surprise, as both are the radio access vendors for AT&T’s 3G high-speed packet access networks. AT&T president and CEO of operations John Stankey cited the possibility of upgrading 3G equipment being deployed today to LTE in the future, potentially saving AT&T billions in capex. All new 3G gear deployed this year will be based on the vendor’s latest base station platforms, Ericsson’s RBS 6000 platform and Alcatel-Lucent’s new MC-TRX technology, both of which used software defined radio (SDR) technologies that can simultaneously support multiple wireless standards in the same infrastructure.

Bhikshesvaran said that Ericsson’s incumbent status gave the vendor an advantage but not necessarily a sizable one. “It always helps to be an incumbent because you have an embedded base and a customer relationship,” Bhikshesvaran said. “Technology is constantly evolving. When it comes to next-generation technologies, customers always have a choice. We didn’t take anything for granted.”

Bhikshesvaran said what could be perceived as Ericsson’s ingrained advantage, its multi-standard base station, was a matter of timing and still a point of fierce competition. By getting the RBS 6000 last year, it was able to deploy into its customers networks, making Ericsson seem all that more attractive to its existing customers. But Ericsson has landed North America’s two other announced LTE contracts, Verizon Wireless (NYSE:VZ, NYSE: VOD) and MetroPCS (NYSE:PCS), neither of which uses Ericsson as a 2G or 3G vendor, showing Ericsson can compete just as hard when it has no incumbency advantage.

AT&T is sticking to its commercial deployment plan in 2011, but has built trial LTE networks in two unnamed markets, presumably using Ericsson and Alcatel-Lucent gear. It has budgeted between 18 billion and 19 billion in capex for 2010, much of which will be spent on its mobile broadband networks. While some of that represents the initial builds on its LTE networks this year, the larger part of its wireless spending will be spent on upgrading its 3G network and backhaul networks to support ever-increasing data demands. In a statement released by AT&T today, Stankey said AT&T also plans to fully take advantage of AT&T’s role as GSM operator to move through the HSPA upgrade path toward 4G, while taking a not-so subtle swipe at Verizon Wireless, which is at the end of its 3G upgrade path with CDMA 1X EV-DO.

“AT&T has a key advantage in that LTE is an evolution of the existing GSM family of technologies that powers our network and the vast majority of the world’s global wireless infrastructure today,” Stankey said in a statement. “As some competitors move away from their existing investment in niche 3G platforms, we are able to efficiently and quickly move toward LTE while enhancing our existing 3G performance and providing access to a strong ecosystem of customer devices.”

Verizon, however, plans to get its LTE network up a year earlier, launching in the latter half of this year. But since it will be one of the first global operators to launch, the number of devices and applications available over the network will be limited. Verizon expects to use LTE primarily as a super-charged laptop broadband card network in its first year. Meanwhile, AT&T expects there to be a more fully developed LTE device ecosystem in 2011 when it launches.

Unlike Verizon, though, AT&T didn’t name vendors for other elements of the future LTE networks. While Verizon named separate contracts for the evolved packet core—tapping Starent Networks along with ALU and Ericsson—and the IP multimedia subsystem (IMS) service delivery network—naming Nokia Siemens Networks (NYSE:NOK, NYSE:SI) and ALU—AT&T appears to be focusing solely on radio access today. In the past, vendors who supply the radios have supplied the core network, but as mobile data networks have become more robust, operators have begun separating out the two contracts, Cisco Systems (NASDAQ:CSCO)-owned Starent’s core wins with 3G and 4G providers globally being the biggest example.

AT&T seemed to cement that policy today by naming Ericsson and Alcatel-Lucent not only 4G equipment vendors but the two suppliers for its radio access domain. Announced last year, the domain supplier program is AT&T’s initiative to streamline its vendor ranks by dividing its networks into a series of domains, each of which will have two designated vendors. While AT&T isn’t guaranteeing that all business in a particular domain will go to those vendors, it does imply some preferential status, meaning Ericsson and Alcatel-Lucent may continue to enjoy their incumbency for some time.