AT&T to talk outage with regulators

A top AT&T executive said the company is in discussions with federal regulators about the outage it experienced last month.

"There will be follow-on discussions with our regulators at the FCC and portions of the government. But that is not to be unexpected. And we're prepared to participate in that," Jeff McElfresh, AT&T's chief operating officer, said Monday at an investor event. "We'll have to let that process shake out, and take its due course."

McElfresh didn't provide any further details. 

Already New York Attorney General Letitia James announced an investigation into AT&T's outage, which happened on February 22.

"Nationwide outages are not just an inconvenience, they can be dangerous, and it's critical that we protect consumers when an outage occurs," James said in a statement. "I encourage any New Yorker who was affected by this disruption to file a complaint with my office."

Potential knock-on effect

The scrutiny does not come as a surprise. Blair Levin, a policy adviser to New Street Research and a former high-level FCC official, warned last week that regulators might look into the issue.

Further, "the AT&T wireless outage will hurt the company's efforts related to certain policy issues, such as the retirement of copper networks," Levin wrote in a note to investors Monday, prior to McElfresh's comments.

Indeed, AT&T recently alerted California regulators that it is planning to shutter its copper DSL network in locations throughout the state, including in big counties like Orange, Los Angeles, Riverside and San Bernardino. That effort is part of AT&T's nationwide move away from copper and toward fiber and 5G. But already there is opposition to AT&T's plan in California over fears that replacement options – including mobile services – won't be reliable.

"We definitely were not happy letting our customers down," McElfresh said Monday of the outage. He added that AT&T does expect some "customer impact."

'Process error'

McElfresh declined to offer much insight into the reasons for the outage.

"This was an internal process error," he said, noting that it occurred during AT&T's work to expand its network. "We do these kinds of things hundreds of times a night in the maintenance window, and it was the incorrect application of a process that created this."

That's almost verbatim the wording used by AT&T CEO John Stankey in his February 25 letter about the outage.

"Our initial review of the cause of Thursday's outage indicates it was due to the application and execution of an incorrect process used while working to expand our network," Stankey wrote. "We are investing billions to grow our network and deliver an even more exceptional customer experience. This is both a point of pride and a challenge that always requires care and focus."

The outage was a hot topic of discussion at the recent MWC trade show in Barcelona, with attendees speculating on causes ranging from a core network software upgrade malfunction to a misconfigured text messaging database.

Based on data from network-monitoring company Opensignal, AT&T's market share loss was 12% higher the week after the outage compared to the week before. The outage also primarily affected the Eastern portion of the US.

Outage aftermath

AT&T said it will offer affected customers $5 per account as an apology, which analysts said could cost the company about $40 million.

"Assuming ~2.8 postpaid connections per account (Verizon has 2.84), this implies AT&T will need to provide credits to ~7.8 million accounts, for a total of $39 million of postpaid credits," wrote the financial analysts at TD Cowen in a note to investors Sunday. "Given the relatively small impact to the company's >$50 billion annual postpaid revenue, AT&T notes this will not affect its 2024 financial guidance."

But the analysts also noted that AT&T typically scores poorly in TD Cowen's surveys of US consumers.

"A major network outage such as this one could set some of these customers over the edge," they warned. However, they also wrote that AT&T continues to offer "aggressive device promos," and that ought to help blunt customer defections.