Broadband services

AT&T Sees Brightest Future in the Enterprise

A lot is in flux for AT&T as the service provider has nearly completed its Project VIP, is set to close its acquisition of DirecTV soon, has just purchased $18.9 billion worth of AWS spectrum in the recent auction and is expanding into Mexico. The carrier's CFO sees a very different company emerging in the next five years, and it'll be one that's focused on business first.

By business, AT&T Inc. (NYSE: T) CFO John Stephens is referring to the enterprise, which he thinks AT&T is uniquely positioned to serve. Speaking Wednesday at the Deutsche Bank conference, he said that going forward AT&T will first be a company that serves businesses with wireless and wireline services. (See AT&T, Verizon CFOs Predict Title II Litigation.)

"IoT and business just naturally go together, and we believe we have a significant advantage over many competitors because of our great wireless network that many don’t have and our great wireline footprint," he said. (See AT&T Connects Cars & Trash Cans .)

Half of AT&T's wireless business last year was made up of business customers. Stephens feels this is a space it can uniquely play in from the Internet of Things to cloud to strategic services like security, which is a priority for its business customers now, he said. (See AT&T's New Security Strategy.)

Helping fuel this view of the carrier's future are the recent acquisitions it has made, including of DirecTV, which is expected to close in the first half of the year, as well as Iusacell and Nextel Mexico in Mexico. Stephens sees AT&T's ability to bundle its 57 million broadband locations with DirecTV's video offering as a huge advantage for the combined companies. (See AT&T Eyes TVE Blitz With DirecTV and AT&T: Merger Review Halt Won't Hurt Us.)

The carrier's international business will start small, but he said Mexican expansion is a great way for AT&T to "invest at a modest level to get a great spectrum position and business and geography that adds on to our platform." (See AT&T Names Iusacell CEO, Closes Acquisition, AT&T to Buy Nextel Mexico for $1.9B and AT&T Highlights Mexican Ambitions.)

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Part of Stephen's reasons for emphasizing the carrier's strength in the enterprise and broadband is that its wireless business, which accounts for 20% of its revenue stream, will bring in fewer customers than anticipated in the first quarter. The carrier filed an 8K with the Securities and Exchange Commission (SEC) last night reiterating its 2015 guidance, but noting that postpaid subscriber additions for the first quarter would come in around 400,000, driven by tablets. That would be lower than last year's 625,000 postpaid additions and below analyst expectations. (See AT&T Grows Revenues, Subs in Q4.)

Stephens instead talked up the carrier's churn numbers, which declined quarter-over-quarter to 1.22% and are expected to dip even lower in the first quarter. He said AT&T has seen a shift in feature phone users to smartphones, and, while he expects to continue to lose feature phone users, he doesn't plan to incentivize them to stick around as he expects AT&T's prepaid business to make up for those losses.

"We're going to come out of this a much different company -- focused on business, video and broadband, international and consumer mobility," Stephens said of AT&T's ongoing changes. "I don’t think there will be another company normally associated with our industry that has the combination of assets and opportunity for growth on a long-term basis that we do."

— Sarah Thomas, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editorial Operations Director, Light Reading

Ariella 3/13/2015 | 8:23:34 AM
Re: Growth in enterprise? @ mhhf1ve, are you old enough to remember Ma Bell? I even had some high school text books (already somewhat out of date at the time) that still preached the concept of a "natural monopoly" and offered the phone company as illustration.
mhhf1ve 3/13/2015 | 2:10:49 AM
Re: Growth in enterprise? Ariella, yah, I think there's a chance that AT&T will do just fine negotiating MVNO deals with companies like Consumer Cellular and keeping the main network as a premium tier. Then all the risk of acquiring subscribers is shifted to MVNOs and if those MVNOs get too big, the contract will be have to be re-negotiated appropriately (according to Ma Bell).
Ariella 3/12/2015 | 6:56:28 PM
Re: Growth in enterprise? @mhhf1ve concentrating on the higher end market like some brands do? It's possible.
mhhf1ve 3/12/2015 | 5:32:25 PM
Re: Growth in enterprise? Ariella, this strategy makes me wonder if AT&T is aiming to become a type of luxury brand for wireless services and leaving the commodity wireless service to its subsidiaries, MVNOs and lower priced competitors like sprint and T-mo.
sarahthomas1011 3/12/2015 | 5:29:38 PM
Re: Growth in enterprise? I don't think they are accepting or ignoring it, but rather going after them on the prepaid front with Cricket instead. I guess they'd rather have prepaid users on the low-end than postpaid feature phones since smartphones are so much more lucrative. They've also responded to a lot of T-Mobile's pricing moves, more so than Verizon, at least.
Ariella 3/12/2015 | 12:50:35 PM
Re: Growth in enterprise? "But it seems strange for AT&T to accept consumers fleeing to T-mobile or VZW or Sprint without a fight. " @mhh1ve I agree. It doesn't seem to be a good strategy for the long term.
mhhf1ve 3/11/2015 | 6:27:29 PM
Growth in enterprise? I suppose as the economy improves, businesses will begin to spend more on their IP services (not so sure that business IoT will ramp up that quickly in 5 years, tho). But it seems strange for AT&T to accept consumers fleeing to T-mobile or VZW or Sprint without a fight. I can maybe understand that there may not be much to gain in chasing lower margin wireless consumers, but I'd think there might be more growth potential with more and more smartphone users. 
mendyk 3/11/2015 | 4:25:16 PM
Re: What he said A lot of the deals (including DirecTV and for the most part the Mexico expansion) have very little to do with an enterprise focus. It would also be hard to find a network operator that wouldn't say the enterprise market is very important.
sarahthomas1011 3/11/2015 | 4:17:48 PM
Re: What he said I thought the shift in attention towards the enterprise was notable as I've primarily heard AT&T focus on consumers, even eith IoT. It's making a bigger push into cloud, security and video -- and bundles, in general -- for businesses. The 8K had the financials and at least guidance didn't change, even as sub growth slowed, so he didn't field a lot of tough questions.
mendyk 3/11/2015 | 3:50:30 PM
What he said Sarah -- Was there anything in the Stephens remarks that was surprising or enlightening? On the surface, this looks like the typical "all's well" stuff that carefully coached executives deliver to investor audiences.
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