In the most significant announcement since SBC acquired the old AT&T and became “the new” AT&T, the telco giant announced it will spend $14B over the next three years to expand its wireline and wireless networks under its newly coined “Project Velocity” initiative. The company wants to move to an all IP network platform, which means they’ll be phasing out TDM transmission and the PSTN.
Surprising most analysts, AT&T said $6B of that $14B will be spent on wireline upgrades. In particular:
1. Residential Broadband via U-Verse, IP-DSLAM and (in some rural areas) LTE:
Traditional U-Verse (TV, high-speed Internet, VoIP) as well as U-Verse IP-DSLAM (high-speed Internet, VoIP, but NO TV service) will be available in many more areas with Internet access speeds of 75M b/sec for most customers, with many achieving speeds of up to 100 M b/sec (downstream).
Currently, 32% of AT&Ts customers are covered by (triple play) U-Verse, which will increase by one-third to 8.5M additional customers and 43% coverage by the end of 2015. U-Verse revenues are running at a $9B annual rate and increasing at a 38.6% annual rate. AT&T is making “customer retention improvements in all areas.” (Presumably to avoid losing U-Verse customers to triple play MSO services, e.g Comcast/Xfinity which runs commercials enticing U-Verse customers to come back to Comcast for better high speed Internet and TV service).
AT&Ts wired IP broadband network will expand to 75 percent of residential customer locations in AT&T’s 22-state wireline service area by year-end 2015. Not all of those potential customers will be able to get U-Verse TV service. Rather, they will be connected to IP DSLAMs to achieve higher speed Internet access. (This means AT&T will be jettisoning its ATM over ADSL network in favor of IP/Ethernet transport to/from customer premises to its initial point of presence where the DSLAM resides. Customers currently using ATM over ADSL will have to be retrofitted with new CPE to access U-Verse IP DSLAM or traditional U-Verse).
The higher Internet access speeds (over last mile copper) for U-Verse and IP DSLAM will be achieved by VDSL pair bonding, “small form electronics,” and VDSL vectoring.
Status Report: Currently about 9% of AT&T landline customers cannot get broadband, while 32% have the U-Verse triple play available to them, 32% have U-Verse IP DSLAM available and 27% are served via legacy broadband (i.e. non-IP DSL).
By the end of 2015, AT&T said 99% of customers in its 22 state service area will have broadband available to them via either via wireline or LTE option. The breakdown is as follows: 43% of customers will have access to the U-verse triple play, 32% will have access to the U-verse IP DSLAM and the remaining 25% will need to rely on LTE, which will be available to 99% of AT&T’s customer base.
Other key points related to residential broadband are as follows:
- Much higher speed wireline Internet, via either U-Verse triple play or U-Verse IP DSLAM (double play) will be available to 57M AT&T customer locations by 2015. The IP DSLAM double play offering of broadband Internet and VoIP will be available to 24 million customer locations by year-end 2013. Those customers will be offered a triple play bundle based on IP DSLAM and satellite video service from Dish network.
- Customers in rural or remote locations (presumably the 25% who won’t get wireline broadband access) will be able to get LTE wireless access, as AT&T plans to extend its 4G LTE build out to cover 300M POPs by end of 2014.
- High speed IP connectivity will be available to 99% of wireline service?area customers (via either U-Verse, IP-DSLAM or LTE) by 2015.
Summing up, AT&T’s firmly believes that:
- Wireline IP broadband is structurally attractive in dense population areas
- IP broadband is the most important product in the triple or quad-play bundle
- AT&T IP broadband will meet customers’ growing speed requirements
- Significant synergies exist between wireless and wireline assets
2. Fiber to the Building deployment:
AT&T will light fiber to reach 1 million additional business customer locations, covering 50 percent of multi-tenant office buildings in AT&T’s wireline service area by year-end 2015. 50% of those multi-tenant office buildings in AT&Ts wireline service area will be fiber connected. (That’s up from about 15% nationwide today).
3. Strategic Business services:
IP VPN, Carrier Ethernet, (Web server) hosting and vaious managed business services generated $6.4B in revenues last year and is growing at 14.5% annually. Wireline data and managed IT services for enterprise customers are growing at a rate in excess of 6%.
Cloud computing and security are seen as the next big growth opportunities as AT&T transitions to managed services for its enterprise customers. In particular, AT&T plans to partner with cloud service providers as well as providing cloud services over their own managed IP network that leverages performance, reliability and security. During the Analyst Day webcast, AT&T said, “Virtualization and mobilization are driving the need for a ubiquitous, dense wireline footprint solutions that bundle cloud with connectivity (AKA Cloud Networking), symmetrical bandwidth, and security through active network management.”
Century Link/Savvis and Verizon/Terremark are recognized cloud leaders each having very solid cloud computing with managed IP VPNs for delivery of cloud services. They will now have much more competition from AT&T in the cloud space.
Additional information on U-Verse:
As indicated in the graph below, AT&Ts broadband market share is growing in areas where U-Verse is available to residential customers.
U-Verse has delivered 5 years of top line growth for AT&T:
- $9.5B revenues, which are growing 38% Year over Year
- 7.1M IP broadband subscribers, with 2.5M added in last 12 months
- 4.3M IPTV subscribers, 760K gained in last 12 months
- 18% U-verse video penetration; 23% U-verse broadband penetration
- ~$170 ARPU for U-verse triple-play service bundle
At a Wells Fargo investment conference on November 8th, AT&Ts VP & CFO John Stephens said that AT&T evaluated commercial buildings with six tenants or more to determine whether they should get fiber connected. Considerations included: distance from AT&Ts central office (CO), cost efficiency and build-out cost.
A huge side benefit for AT&T is that once the fiber to the building is installed and AT&T owns the right of way, the company will install Distributed Antenna Systems (DAS) along the fiber route to provide increased 3G/LTE wireless coverage. The DAS’s would use fiber backhaul to AT&Ts CO. Mr. Stephens hinted that DAS’s (deployed along the fiber-to-the-building route) might also be used for broadband wireless offload, but did not disclose any details how that might work or be configured.
[Infonetics analyst Stéphane Téral recently said in an email, “The majority of operators are still using distributed antennas (DAS) in their mobile networks for coverage, and despite all the talk about using small cells to boost capacity in large venues, operators we interviewed believe DAS will remain a fundamental tool for malls, airports, stadiums and the like.”]
Mr. Stephens was both enthusiastic and confident during his presentation. He said, “AT&T is investing in tried and true things we know. We are moving away from PSTN and torward an all IP network platform for delivery of all telecom services including voice.”
During its November 7th Analyst Day webcast, AT&T CEO Randall Stephenson echoed Mr. Stephens confidence, “These are things we’ve done before – logical extensions of proven technologies and already successful businesses. We are very confident in our ability to execute this plan.”