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AT&T Shifts Network Spending From Hardware to Software

Sept. 24 (Bloomberg) -- AT&T Inc., the largest U.S. phone company, plans to shift its spending away from equipment purchases and toward software, aiming to improve network performance and handle more traffic while keeping costs down.

AT&T introduced a supplier overhaul yesterday called Domain 2.0, a long-term plan designed to trim hardware costs over the next five years and coax vendors into developing broader software capabilities. The shift will create a “downward bias” to capital spending, according to a statement.

The effort relies on so-called virtualization, which uses software to allow hardware to handle more tasks at once. By extending to AT&T’s entire network, the move represents the most ambitious effort of its kind, said Iain Gillott, an analyst at IGR Inc. in Austin, Texas. Until now, carriers have only dabbled in virtualization, he said.

“The difference is like if Mercedes said they were building a hybrid car versus Mercedes saying all their cars will be hybrids in five years,” Gillott said.

AT&T, one of the biggest U.S. companies in terms of equipment expenditures, is on track to spend $21 billion on capital improvements this year. The carrier has been reassessing its spending in an effort to better manage burgeoning traffic, said AT&T Senior Executive Vice President John Donovan. Sales of smartphones and tablets have led to a flood of data and video over AT&T’s pipes.

In streamlining its purchasing, AT&T also has pared down its list of suppliers, which include Alcatel-Lucent and Cisco Systems Inc. The first phase of supplier restructuring, Domain 1.0, reduced the field of suppliers from more than 100 to about 20, Gillott said.

While no vendors will be excluded from this next stage of purchasing, some will fare better than others, Donavan said.

“Readiness varies across our suppliers, and there will be awards for those that are further ahead,” he said.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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