AT&T-Microsoft Combo Shifts the Wireless Network Paradigm

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Let’s be clear. AT&T is not getting out of the wireless business, and Microsoft is not becoming a mobile network operator.

In the deal that Inside Towers reported yesterday, AT&T is spinning off its Network Cloud operations unit involving people and technology to Microsoft. In return, AT&T lowers its capital expenditures for 5G core operations and services development, and related network operating expenses. At the same time, Microsoft adds significantly to its “Azure for Operators” platform. 

The AT&T-Microsoft collaboration actually goes back to 2019, when the two companies inked a multi-year deal, estimated at more than $2 billion at the time. The arrangement then was that AT&T would utilize Microsoft Azure cloud technology to virtualize its 5G core functions and to work with Microsoft on developing tools for high-speed 5G services and artificial intelligence applications.  

This latest step creates a much more integrated operation between the two companies. Rather than just using Azure as a cloud storage and computing platform, AT&T is selling off its Network Cloud platform intellectual property, technology, and technical expertise to Microsoft. In the process, AT&T is terminating the employment of all the Network Cloud employees who will be offered positions at Microsoft. Note that terms of the deal were not announced. 

The deal helps relieve some financial pressure points for AT&T. The company has struggled with adequate capex for its 5G network build to keep pace with T-Mobile and Verizon. (See, Is AT&T Underinvesting in its Networks?).

With agreements to divest most of its media properties, the company is paying down long-term debt that ballooned with DirecTV and Warner Media acquisitions. AT&T is striving to reduce its debt-to-EBITDA leverage down to about 2.5X by the end of 2022.

Spinning off Network Cloud operations reduces wireless network capex and opex while creating opportunities for rapid development of competitive, revenue-producing 5G services for residential and Enterprise markets alike.

Under its Azure for Operators moniker, Microsoft will be supplying all of AT&T’s 5G core cloud-based and cloud-enabled functions and services. AT&T, for its part, will continue to design, build, and operate its 5G radio access network.

Azure for Operators, launched in September 2020, is the culmination of telecom competencies that Microsoft has been building for some time. The platform can deliver end-to-end services for telcos while integrating cloud-enabled functions, infrastructure, and service-platform components.

The 2019 deal with AT&T was intended to move all non-network infrastructure applications to the Azure cloud by 2024. With that deal, Microsoft provided AT&T with 5G mobile edge computing capability.

Its March 2020 acquisitions of Affirmed Networks and Metaswitch helped Microsoft build its “telco DNA” as both acquired companies were supporting telcos with virtual network functionality (VNF) and cloud-based network functionality (CNF).

Azure for Operators is part of what Microsoft calls its “world network.” The company operates close to 50 data centers in over 140 countries. The network comprises over 160,000 fiber route miles that connect with operators at more than 170 points of presence and over 20,000 peering points. 

The platform provides operators with computing capabilities where they are needed: at the Enterprise edge, the network edge, the network core, or in the cloud. The Azure for Operators portfolio includes cloud-native network functions to support solutions from the RAN to the core.

Moreover, Azure for Operators provides access to business intelligence analytics that can support operator decision-making for network operations or new services development. 

In the end, AT&T gains access to Microsoft’s extensive Azure cloud development community that can help the company develop and test new applications and services that can drive new customer experiences and new revenue streams.

By John Celentano, Inside Towers Business Editor

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