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DSL/vectoring/G.fast

AT&T Wireline 'Good News' Not All That Good

AT&T Inc. (NYSE: T) this morning touted its first year-over-year growth in total wireline consumer revenues in more than two years, and said it saw a 30 percent increase from consumer IP service revenues, including U-verse and broadband.

AT&T also talked about improving wireline revenue trends which, coupled with cost-cutting, increased wireline operating income margins.

While those numbers sound encouraging, to a great extent they underscore how the consumer wireline business, in particular, continues to spiral down. Overall, wireline revenues were off 3 percent and revenue-producing consumer connections declined by 2 million in the past year.

And that highly touted revenue growth was a whopping 0.2 percent, as AT&T added 236,000 U-verse subscribers in the quarter to reach 2.7 million total. The net add figures were worse: only 148,000 for the quarter, once churn is factored in. The only bright side was that this limited universe of customers is paying more for service: ARPU grew 14 percent as U-verse TV subscribers now pay about $160 a month for their service.

How limited is the U-verse universe? By contrast, Comcast Corp. (Nasdaq: CMCSA, CMCSK), the largest cable operator, has 24.6 million subscribers, and Dish Network LLC (Nasdaq: DISH), the weakest of the satellite-TV players, has more than 14 million subs. AT&T is closest to Verizon Communications Inc. (NYSE: VZ), whose FiOS TV is closing in on 4 million. That means AT&T remains a very small blip on the pay-TV landscape.

And while U-verse is adding 900,000 subs in a year, the total number of AT&T consumer connections producing revenue is dropping by 2 million, from 45.7 million to 43.7 million over the same period.

The glass-half-full version of AT&T's outlook is that U-verse is highly rated, being chosen as the best paid-TV offering in the J.D. Powers consumer satisfaction surveys, where it's available. But as the U-verse rollout begins to wind down, can AT&T really drive penetration numbers up enough to challenge cable and satellite competition, ahead of the flood of OTT video? (See AT&T, Verizon Top JD Power TV Ratings.)

To date, the overall penetration rate is only 14 percent, although that goes up to 22 percent in areas where U-verse has been available for 30 months. The service today reaches 26 million households.

All of those numbers prove why AT&T's consumer wireline outlook continues to revolve around cost-control to maintain margins. To that end, AT&T trimmed 15,000 jobs and continues its integration of the wireline and wireless operations into creation of one AT&T, senior EVP and CFO Rick Lindner told analysts.

"We have a commitment to operation as one AT&T and as we consolidate and integrate our internal operations there will be continuing opportunities for greater efficiency," Lindner says.

His response to a question about the point at which operating a wireline and wireless business stopped making sense stressed the role of the wireline network in supporting wireless, being the network backbone to all those cell sites, and enabling the rapid uptick of mobile data bandwidth.

Mobile devices are "the way people want to access the network," Lindner says. "In order to provide the bandwidth and to provide the capacity and the kind of service experience you want, you have to drive that traffic as quickly as possible into a wired infrastructure which improves service quality and provides significantly more bandwidth."

AT&T's business silver lining
If there was any real good news on the wireline side of AT&T, it lay on the business side of the house, where the company saw modest 3.7 percent growth in strategic business revenues from $1.155 billion to $1.2 billion, and business IP data were up 8 percent. Even here, Lindner admits, the struggling economy continues to put pressure on voice revenues, which are now less than 40 percent of AT&T's total business sale.

But business customers are investing again, he says, and the move to more managed services and cloud-based offerings holds promise.

"It is becoming a business driven by data, by IP-based services, managed services, and increasingly as companies move more of their applications and content into the cloud -- then hosting [and] cloud computing becomes more important as well as facilitating applications through mobile devices," he says. "We are positioned well in all areas of the business."

— Carol Wilson, Chief Editor, Events, Light Reading

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paolo.franzoi 12/5/2012 | 4:20:40 PM
re: AT&T Wireline 'Good News' Not All That Good

&nbsp;


Uh, I don't know that video over copper "does not work".&nbsp; I spent about 5 years in the early 2000s working with carriers on installing it and turning up customers.


It has its plusses and minuses.&nbsp; The claim that it is a "lot better than cable" is also highly dubious.&nbsp; In fact, if you felt like it you could run U-verse over cable.


I would say all the technologies have their tradeoffs.&nbsp; I find the strategy questions much more interesting.


seven


EDIT:&nbsp; And btw, compare U-verse penetration to satellite....22% ain't bad.

cnwedit 12/5/2012 | 4:20:40 PM
re: AT&T Wireline 'Good News' Not All That Good

What is a lot better than cable right now is what U-verse can offer, namely multi-room DVR capability. And AT&amp;T can roll out new features easily on the platform without upgrading the consumer equipment, which is something cable can't do. The service was ranked far superior to cable in customer satisfaction ratings done by J.D. Power &amp; Associates. Everywhere U-verse is offered, it's ranked number one - even above FiOS.&nbsp; That's why the penetration rates don't make sense to me.

spc_markl 12/5/2012 | 4:20:39 PM
re: AT&T Wireline 'Good News' Not All That Good

Well, if you want to talk about strategy, there is finally a consensus internal to AT&amp;T that FTTH is the way to go.&nbsp; Whether AT&amp;T moves substantially in any wireline broadband direction is dubious for now.

paolo.franzoi 12/5/2012 | 4:20:38 PM
re: AT&T Wireline 'Good News' Not All That Good

&nbsp;


As I worked for AFC/Tellabs at the start of FiOS, I can tell you point blank that residential was the focus.&nbsp; Same with NTT.


Those are the world's 2 large scale FTTH projects.


seven


&nbsp;


&nbsp;

spc_markl 12/5/2012 | 4:20:38 PM
re: AT&T Wireline 'Good News' Not All That Good

The consensus at AT&amp;T is over future direction -- not only the benefits of fiber.&nbsp; There has been tremendous infighting over the years on this issue.


You are correct that FTTH is expensive.&nbsp; But while many would prefer to believe that Verizon executives have been out of their minds all of this time -- the first priority was always to get fiber to the Fortune 2000 customers -- taking advantage of the fact that the FCC ruled that unbundling was not required in providing fiber to the home.&nbsp; Despite all of the talk about FiOS, the first priority has always been FTTB -- that is where you will find the margins.&nbsp; In fact, in the final analysis, Verizon would love to dump all of its residential wireline traffic.

paolo.franzoi 12/5/2012 | 4:20:38 PM
re: AT&T Wireline 'Good News' Not All That Good

U-verse and FiOS are only in a small handful of properties in common.&nbsp; That is in North Texas.


The reason the penetration is small is that the 1 feature you have touted only matters to a few customers.&nbsp; What has been shown to cause switching is....price.&nbsp; If you look into the past, the big upswing for satellite was Sunday Ticket.


So, you get some penetration as the 3rd player (because Cable and Satellite are everywhere).&nbsp; But the reality is that the product presented - THE CONTENT - is basically the same.&nbsp; Glee is the same on all 3 media.&nbsp; And its the same on OTT video.&nbsp; Same, same, same.


That is the basic issue.&nbsp; The whole thing is commoditized.&nbsp; So, why add lots of "features" that buy you no market share?


As to a consensus about FTTH in AT&amp;T.&nbsp; If you are implying there is a consensus that FTTH is a better technical solution than DSL, then heck EVERY carrier has that consensus.&nbsp; What is NOT a consensus is whether it matters enough to do.&nbsp; Compare take rates (and rentention rates) of FiOS and U-Verse.&nbsp; Then, compare the costs.&nbsp; Do the math.&nbsp; Is FTTH a good deal?&nbsp; Is it a better deal than doing more wireless?&nbsp; Is it a better deal than more business services?


seven


&nbsp;

paolo.franzoi 12/5/2012 | 4:20:37 PM
re: AT&T Wireline 'Good News' Not All That Good

&nbsp;


They may have had an FTTB plan....but FiOS was a residential play. &nbsp;I worked directly on it for years.


&nbsp;


seven


&nbsp;


Let me give you some direct info. &nbsp;They originally requested us to build a unit that supported a T-1. &nbsp;We built it and a DS3 card to terminate it in the CO onto a DACS. &nbsp;They then realized the OSS environment would not be able to provision the T-1s. &nbsp;So, they cancelled that and have been using Adtran T-1 over Ethernet for those customers. &nbsp;We built large voice port count units for business. &nbsp;Again, cancelled. &nbsp;Built nrt-VBR for data support...eh nope the Vz network could not support. &nbsp;Comparing the SONET network buildout and calling that FTTB and then comparing it to FiOS and U-verse is not even in the same domain.

spc_markl 12/5/2012 | 4:20:37 PM
re: AT&T Wireline 'Good News' Not All That Good

Seven,


My business partner worked at Verizon for 28 years and I can tell you point blank that this plan for FTTB was in place since the 1980s.&nbsp;


Mark

paolo.franzoi 12/5/2012 | 4:20:36 PM
re: AT&T Wireline 'Good News' Not All That Good

&nbsp;


Uh....so the problem with all of what you are talking about is that we are talking about today's strategies and the difference between FiOS and U-verse as strategies. &nbsp;Both AT&amp;T and Verizon have had fiber to the large business strategies for a long time. &nbsp;So, that is not a difference.


seven


&nbsp;

spc_markl 12/5/2012 | 4:20:36 PM
re: AT&T Wireline 'Good News' Not All That Good

Seven,


I could not agree with you more -- FiOS and U-verse are residential plays.&nbsp; However, it was not a coincidence that the fiber build-out passed as many business parks, office buildings, etc. as possible along the I-95 corridor -- about 30 miles out on each side from Boston to Richmond.&nbsp; That is where a lot of Fortune 2000 businesses are located.


The key point all along was that especially at the beginning, it made no financial sense to do FTTH -- there was a bigger overriding goal -- essentially FTTB subsidized FTTH.


Mark

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