AT&T Inc. is planning to rebuild its sprawling network with commoditized, off-the-shelf equipment controlled by software, a move that could cut its capital costs by billions of dollars and put further pressure on already battered makers of telecom gear.

The shift will mean the second largest U.S. carrier will buy less specialized equipment from vendors like Ericsson, Alcatel-Lucent SA and Cisco Systems Inc. and instead buy more generic hardware from a wider variety of producers. That equipment will be tied together with software, making it easier and cheaper to upgrade to new technologies, roll out new services or respond to changes in demand for connectivity.

AT&T is hoping the new network plan will broaden its pool of suppliers and keep it from being locked into any one vendor at a time when the number of gear makers has withered. Much of the software running the network will be open source, which will allow other carriers and researchers to join the effort to advance its development.

The plan will take time to roll out, and AT&T faces hurdles in integrating the new approach with legacy systems that remain useful. Ultimately, however, it could mean less spending for a gear industry that desperately needs it.

"It does save you money," said John Donovan, head of AT&T's technology and network operations. "The fundamental reason would be economics."

Google Inc. and other big Internet companies made similar moves in recent years in their massive data centers, which they filled with cheap servers operated by sophisticated software. The shift helped squeeze margins on servers, making it tougher for companies in that business to compete. Last month, for instance, International Business Machine Corp. agreed to sell its low-end server business to Lenovo Group Ltd. for $2.3 billion, allowing IBM to focus on more profitable businesses like software.

Telecom gear companies are already pivoting to adapt to the new reality. Alcatel-Lucent said Sunday it has partnered with Intel Corp. to pursue the sorts of technologies that will be required for AT&T's new network. Nokia Solutions & Networks said the same day it will collaborate with networking gear maker Juniper Networks to ramp up its offerings of Internet protocol routing equipment.

AT&T has a lot of clout when it comes to network spending. It plans about $21 billion in capital spending this year. In general, about a third of capital spending at U.S. telecom companies goes to network equipment, according to Raymond James analyst Simon Leopold.

The carrier hasn't lowered that spending target to reflect its new network plans, but said it expects the new program to put "a downward bias" in those costs in the next five years despite traffic increases as it completes the project across its entire network.

High-end telecom gear now comes built for specific purposes and network technologies with the necessary software built in. AT&T's new plan means the company won't have to regularly rip out its routers and switches every time it wants to upgrade its network. Instead, it would simply update the software that governs how the gear works.

The goal is to be able to quickly and remotely adjust network functions, including rerouting traffic, adding capacity and new features.

"What used to take 18 months should take minutes," Mr. Donovan said.

What was a pain for AT&T has been a boon for the telecom gear industry, which has been able to regular rounds of lucrative tenders as operators like AT&T and Verizon Wireless upgraded from basic cellular service to third generation networks that were better able to handle Web browsing and to fourth generation networks with broadband speeds that make it easy to watch video on wireless devices.

Already, the industry faces tough competition in many markets from Chinese gear maker Huawei. Under pressure from Huawei's aggressive bargaining, telecom gear prices fell by almost 45% in six months in 2007, driving many smaller players out of the market, according to Sanford Bernstein analyst Pierre Ferragu.

As part of its new plan, AT&T has enlisted leading gear maker Ericsson to help with both the software and hardware. The carrier has also signed up smaller companies Tail-F Systems AB, Metaswitch Networks Ltd. and Affirmed Networks, Inc. It expects to name other partners by the end of the year.

AT&T also opened the door for participation from other smaller companies and startups the company wouldn't have previously tapped for its network functions.

Write to Thomas Gryta at thomas.gryta@wsj.com

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