Microsoft, AT&T Reveal the First Phase of Their Alliance

Yesterday, Microsoft (MSFT) and AT&T (T) revealed details about the first phase of their alliance to collaborate on 5G (fifth-generation), cloud computing, and edge computing solutions. The companies first announced the partnership in July.

The early phase of the alliance

Together, Microsoft and AT&T are developing NEC (Network Edge Compute) technology. NEC technology aims to offer 5G benefits to both companies’ enterprise customers. Through this technology, the telecom giant’s network will integrate Microsoft’s Azure services. The companies plan to begin NEC technology work in Dallas and later expand to Atlanta and Los Angeles.

AT&T Business chief marketing officer Mo Katibeh said, “We’ve said all year developers and businesses will be the early 5G adopters, and this puts both at the forefront of this revolution.” Currently, the telecom giant offers 5G across 21 cities through the millimeter-wave spectrum. However, it plans to launch 5G with an 850 MHz (megahertz) spectrum throughout the US by mid-2020. CNN reports AT&T has been investing $20 billion annually in 5G technology.

NEC technology to have cascading effects

NEC technology could make drones, self-driving cars, and AR glasses more compact and support instant data processing for the 5G network. The technology would also eliminate the need to install a separate data center.

Cloud gaming is another space that could use 5G technology. In AT&T’s press release, GameCloud Studios CEO Aaron Baker said, “AT&T and Microsoft are building the perfect environment for game developers to create amazing new possibilities for gamers. 5G and edge computing have the potential to radically change how we play together and launch new business opportunities for brands and game publishers.”

The deal is significant for both Microsoft and AT&T

The Microsoft-AT&T deal is believed to be worth $2 billion. It was one of Microsoft’s largest deals in fiscal 2020’s fourth quarter. Microsoft’s big win last month was its $10 billion JEDI (Joint Defense Enterprise Infrastructure) contract with the Pentagon. Prestigious deals with governmental organizations or large corporations such as AT&T mean a lot for Microsoft. Its Azure competes with Amazon Web Services, a much bigger player in the cloud computing space. These deals testify to Azure’s capabilities and Microsoft’s fair business practices, qualities that go a long way in winning over investors’ confidence.

As for AT&T, gaining a prominent position in the 5G space is crucial. Much of its growth strategy hinges on offering 5G coverage. Large US telecom operators are competing fiercely for a lead in 5G. AT&T has chosen Microsoft as its cloud provider to up its game and become a “public cloud-first company.” By 2024, it aims to shift a significant portion of its non-network workloads to Azure servers. Another element of its deal is to equip most of its employees with Microsoft 365.

Proper implementation is critical

AT&T and Microsoft should eventually reveal more details about how their alliance will evolve. NEC technology has immense potential and could be a foundation for future developments. According to SDX Central, Gartner analyst and research VP Ed Anderson noted, “First, this is a good customer win for Microsoft.” He added, “Second, it’s a strong endorsement of Microsoft technologies by another strong technology company. Third, it’s a good competitive win relative to AT&T’s other choices.”

The equation is definitely promising. However, the technology’s execution and adoption will be critical. CNN reports Gartner’s Bill Menezes said, “Right now, it’s creating a lot of noise that plays on a lot of current buzzwords in tech.” He added, “What it actually produces remains to be seen.”

Cloud business is Microsoft’s powerhouse

The cloud remains the most significant catalyst for Microsoft’s business. As of yesterday, MSFT stock had rallied more than 51% year-to-date to close at $152.03. Azure’s success is a major reason for this. Stifel Nicolaus analyst Brad Reback predicts Azure revenue will grow to $35.2 billion by fiscal 2022, reports Nasdaq. Reback also foresees Microsoft’s cloud revenue surging to $90 billion by 2030.