AT&T to expand FirstNet while shutting down copper

AT&T announced a new ten-year, $8 billion deal with the FirstNet Authority, the US government agency charged with building a nationwide wireless network for public safety. Part of that agreement calls for AT&T to add another 1,000 cell sites to its wireless network.

At the same time, AT&T recently alerted Californian 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.

Broadly, analysts cheered AT&T's new agreement with FirstNet. But they also noted that it comes as little surprise considering AT&T has been supporting FirstNet's efforts since the foundation of that agency. Moreover, AT&T has already budgeted for FirstNet's expected investments, and therefore its new FirstNet agreement will have little impact on its anticipated network spending over the next few years.

Promises and commitments

"When AT&T initially won the FirstNet contract [in 2017], it explained that it was expected to make $18 billion of 'sustainability' payments to the FirstNet authority over the 25 year contract, to fund FirstNet's operating expenses and reinvestments in the FirstNet network," explained the financial analysts at New Street Research in a note to investors Tuesday, after AT&T's FirstNet announcement.

"It further explained that it expected only $3 billion of this to go toward FirstNet's operating expenses, with the remaining $15 billion ultimately being returned to AT&T to reinvest in its network, for the 20 years following the first 5-year buildout leg. Today's $8 billion announcement for the next 10 years simply guarantees AT&T the funding it had already expected (that is, it is a technicality)," added the New Street analysts.

Similarly, the financial analysts at KeyBanc Capital Markets noted that AT&T's capital expenses (capex) remain unchanged for 2024 at around $21 billion. However, they added the carrier's new agreement with FirstNet will have implications for the tower companies that rent cell site space to AT&T, including American Tower, SBA Communications and Crown Castle. According to the financial analysts at Raymond James, AT&T's network currently stretches across roughly 70,000 cell sites today.

Moreover, AT&T's new agreement with FirstNet may also represent another boost to Ericsson. AT&T recently signed up Ericsson as its primary 5G equipment supplier under a new five-year, $14 billion agreement between the two companies.

"We believe this helps build upon small incremental data points that suggest a wireless capital investment bottom," added the KeyBanc analysts. Their outlook dovetails with other recent commentary that 5G network operators in the US generally may resume spending on their networks after months of relative frugality.

The details

In its announcement, FirstNet said its new deal with AT&T would also ensure "always-on priority and preemption across all AT&T 5G commercial spectrum bands," starting in March.

That's not a surprise considering FirstNet pledged to upgrade its 5G offerings earlier this year.

FirstNet also pledged a move to the standalone (SA) version of 5G, though it did not provide a timeline or vendor for the effort.

"By delivering a standalone 5G core, FirstNet will be able to evolve with public safety-specific technological advancements in the coming years that simply aren't possible with 4G, while maintaining its always-on priority and preemption that is critical for mission-critical communications," the agency wrote, pointing to possible applications such as video from drones and more advanced Internet of Things (IoT) services.

AT&T began offering services to first responders under a partnership with the government's FirstNet effort starting in 2018. The company recently announced it finished its initial buildout of FirstNet's Band 14 700MHz network.

The copper angle

In a separate announcement, the California Public Utilities Commission recently outlined AT&T's plans to discontinue copper DSL services across wide portions of the state.

Specifically, AT&T is requesting regulatory approval to shed its designation as the Carrier of Last Resort (COLR) in certain areas of the state. "A COLR is a telecommunications service provider that stands ready to provide basic telephone service, commonly landline telephone service, to any customer requesting such service within a specified area," according to the CPUC.

As noted by CNN, AT&T and other providers have been shifting away from costly copper infrastructure in favor of fiber or wireless technologies.

On a nationwide basis, AT&T is hoping to build fiber to at least 30 million locations – but that could leave millions of copper locations without connections. In response, AT&T is promising to offer wireless services – including fixed wireless – to many of those abandoned copper locations that will not be upgraded to fiber.

Some companies see an opportunity.

"The inevitable end of landline phone service is understandably worrisome to many consumers and businesses, but there are a range of choices for POTS [Plain Old Telephone Service] replacement – including those from Ooma – that can meet their needs," said Thad White, vice president of product management at Ooma, in a release.