AT&T is well on its way to reaching its network virtualization goals. AT&T CFO John Stephens told investors during the company’s second quarter earnings call yesterday that AT&T has virtualized more than 40 percent of its network functions and is making progress toward its goal of virtualizing 55 percent of its network zby year-end.

Stephens also attributed the company’s commitment to software-defined networking (SDN) and network functions virtualization (NFV) to helping it keep a tight reign on its costs.

AT&T reported second quarter consolidated revenues of $39.8 billion with operating income of $7.3 billion. It also reported adjusted earnings per share of $.79 compared to $.72 in the year-ago quarter. “We had stronger EPS because of lower costs,” Stephens said, noting that the company is expecting to lower its costs even more in the coming quarters as more network functions are virtualized and the network becomes more automated.

Stephens said that once the company’s network becomes more than 50 percent virtualized, AT&T believes the cost savings will exceed the costs of additional investment. “We can see the compounding of the savings already,” he said.

Steve Vachon, telecom analyst with Technology Business Research (TBR), said in a research note that he believes AT&T will improve the profitability of its Business Solutions division long-term by adopting NFV and SDN and integrating open-source technologies and white box hardware. He added that the company’s acquisition of Brocade’s Vyatta network operating system will help AT&T meet its goal of virtualizing 75 percent of its network by 2020.

AT&T announced in June that it was buying the Vyatta assets of Brocade, including the Vyatta vRouter. Analysts have speculated that AT&T’s purchase of the vRouter technology means it will use the technology within its own network and resell it to enterprise customers. This move will likely hurt router vendors such as Cisco and Juniper because they will not only lose AT&T’s business but will also be competing against AT&T for enterprise business.

AT&T is continuing to test fixed wireless 5G using millimeter wave (mmWave) spectrum. Stephens said that it will expand the friendly user trial that it is conducting in Austin, Texas, to other markets. In those tests, participants can stream live TV and experience faster network speeds.

In a recent interview with SDxCentral, Gordon Mansfield, AT&T’s VP of RAN and device design, said that so far there have been few surprises from the trials. He did note, however, that the 5G trials allow vendors to develop products as the standards evolve instead of waiting for the standards to be complete. That will help accelerate deployment because commercial products will be available within months of the completion of the 5G standard.

Stephens also noted that the company’s contract with the government to deploy the FirstNet first responder network will help it more economically build its 5G network. Under the terms of the deal, AT&T will get access to FirstNet’s 700 MHz spectrum and $6.5 billion to design and operate the nationwide network. Stephens said that AT&T intends to begin to deploy wireless services in the 700 MHz spectrum by year-end, and when it does it will also increase its use of LTE-license assisted access (LAA) with carrier aggregation.

LAA will help the company prepare for 5G because it will provide additional bandwidth. And by deploying LAA when it is also building the FirstNet network, AT&T will only have to “touch” the towers and cell sites once versus multiple times, reducing costs.

Update: This article was updated to reflect that Stephens said more than 40 percent of the network was virtualized, not 47 percent, as originally reported.