Project VIP, if approved, means more than half of the U.S. will lose landline phones when Verizon follows. No cutback like this has ever been proposed anywhere in the world since Elisha Gray and Alexander Graham Bell invented the telephone.
1% of the population, about 20-30% of the area, would not have wireless and in danger of depending on satellite for every phone. Jim Cicconi writes me, however, ““no one we're unable to reach with broadband under this plan will lose their voice service.” 20-25% will lose landlines and have to depend on mobile. That’s probably half the land area, because the cuts will be the less dense areas. Fortunately, Voice over LTE is almost ready to take over and can have better call quality than the old phone system.
It’s vital that the FCC ensures prices are fair and service good. There’s an enormous potential saving if wired networks are cut (shutting off the PSTN.) Major changes are required to prevent negative consequences.
That won’t be easy. AT&T’s cheapest wireless plans are now $70-100, far higher than landline charges. The capacity of today’s LTE means you can’t watch much video over the net; it could be many years before the greater capacity of LTE Advanced and beyond are deployed unless required.
If consumers are protected, it’s right to go ahead.
Fiber to Half the Commercial Buildings in Territory
Businesses are willing to pay more than consumers, so retaining them as customers is worth the $1-3B additional that AT&T committed. Cable has been gobbling corporate customers for the last two years and offers 50-100 megabit service cheaply. This was not a market to give up.
The additional fiber will also make it easier to add wireless small cells. Units well under $10,000 and soon closer to $1,000 can supplement the coverage of the big towers. John Donovan of AT&T has been talking small cells as the future for years and this year they are beginning to deploy rapidly. Landlords want the fiber to keep tenants happy. AT&T should be able to convince many of them to allow a small cell on their roof, perhaps without charging rent for the space.
No real increase in consumer broadband
First reports were mistaken. AT&T does not intend to “offer its U-verse TV, Internet and Voice over IP plans in 8.5 million additional customer locations” for a total of 33.5M. Don’t blame the reporters; the press release suggested that interpretation. AT&T again and again has said U-Verse had reached 30M homes. That includes in financial reports, where companies can be penalized for material inaccuracies. In addition, AT&T has always planned to go to ~33.5M in the near future. The current build contains many irregular, irrational holes like much of San Francisco and Indianapolis. They’d be stupid not to fill them in, and John Stankey isn’t stupid.
AT&T found some way to characterize 6M homes they’ve been reporting as served as now unable to get service. One or the other figure is wrong. It may be that the new figure of 24M currently reached was achieved by subtracting 6M current homes they need to bond a second line (already in place) for best TV coverage. AT&T has said they are doing bonding since at least 2009 for those U-Verse homes, but I haven’t seen orders for that many bonded modems hit the supply chain. In either case, the pr is misleading. (Craig Moffett and Todd Spangler caught this last week.) Some (possibly very low) percentage may get vectored lines capable of “up to 75 megabits” rather than the current 25-40 megabits.
Stephenson also made much of the plan to upgrade to IP DSLAMs most of the 8-13 year old units. Those have long been obsolete and AT&T is already systematically replacing them. Improvements in power, space, and manageability of the newer DSLAMs will likely pay for the entire cost of the upgrade. Many customers will will be able to get downstream speeds of 5-15 megabits instead of the previous limit of six, which has been standard on most networks since 2003-2006. A very limited number will be able to get much higher, including some “up to 45 megabits” There will be many who can’t get five megabits and some two and below. Nothing was said about upstream but it’s probably very low.
LTE to 99% in Territory in Three Years
AT&T, knowing they would have to offer something to almost all their present wireline customers, has decided to expand LTE to all but the last 1%. The natural deployment, based on the current towers and backhaul, would leave twice as many without service. Verizon announced in 2009 they would go to 98% nationwide and AT&T was always going to come close. The statements they would only cover 80% were for the politicians. We all know about politicians and truth.
LTE Out of Territory to ~91/92%.
95% overall leaves twice as many unserved as Verizon
The whole game in U.S. wireless changed in 2009 when Verizon announced they would match their 2G footprint with LTE, about 98% of homes. AT&T now announces they would cover the homes of 300M people in 2014, when the national population will be about 315M. It’s 311M now and increasing about 1% per year.
So their plan leaves 15M uncovered, about 5%. If it’s 99% in territory (about 40% of the country), out of territory would be about 91-92% covered. That leaves them somewhat behind Verizon, but not too far.
The last 1% is 20-30% of the territory
AT&T’s man in DC Jim Cicconi writes “no one we're unable to reach with broadband under this plan will lose their voice service.” That’s a crucial commitment because otherwise a quarter or so of the land area would have no voice service except godawful and expensive satellite. The fine points need to be worked out but that goes a long way to making this a reasonable plan.
Chris Ziegler at The Verge was the only reporter I know who realized the problem. “The biggest problem with that, it seems, is that AT&T is only committing in its FCC filing to offer broadband service to 99 percent of its current wireline footprint, which leaves the other one percent — those in the most rural, underserved areas of the country — in limbo, since the carrier also wishes to decommission its legacy network.”
A good plan to protect that huge area is imperative.
Vectoring to 75 Megabits for a Few
From now on, every new build that’s mostly under 3,000 feet should be vectored. Up to 300 meters, speeds are proving out at 70-100 meg down, 10-40 up. AT&T hasn’t suggested they would upgrade the existing 30M lines, so only the last 10% of U-Verse is likely to benefit. It should add less than $200M to the overall U-Verse cost. Existing vendors Alcatel and Adtran hope for the contract, while Calix is trying to edge in. Only Alcatel is publicly shipping vectored DSLAMs, but Adtran and Calix are working to catch up.
In Germany, there are 12M or more homes to upgrade; Britain, France and Italy also have many non-upgraded lines that would be natural. At this year’s BBWF, it was clear the technical problems are fast being solved. But Britain and France are holding back on vectoring because it’s not clear how it will work with unbundling. The three countries have prices 30-50% lower than the U.S. because they have four wireline competitors. They don’t want to give that up.
AT&T has for years had a contingency plan to use vectoring and bonding if customers in volume leave for 100 megabit cable. That isn't in the data, and Randall publicly says "20-30 megabits will be competitive for many years." In fact, AT&T has been holding market share in U-Verse areas where they only offer 10-15 megabits. To do a full upgrade to vectoring would bring 70-100 megabits to the majority of U-Verse homes for about $2B/year for three years. That's a plausible investment but they've given no indication they will pull the trigger unless cable gets much more aggressive. U-Verse is built to a 5-6,000 foot standard; vectoring improvements fall off dramatically after 2,000 feet. So many of the U-Verse homes will not see speedups even if AT&T moves ahead aggressively.
Cable’s the Savior for High Speeds in More Than Half the Abandoned Areas
92% of U.S. homes can get cable modem service, nearly all soon at 50-100 megabits. 5-10% of the U.S. has a broadband problem, but unless you need more than 100 megabits you have a highly capable connection.
If AT&T drops lines to 20-25%, as indicated, at least half of those homes have a cable modem alternative. Many of them have already done so, a key reason AT&T is giving up the territory. That leaves 3-6M homes in AT&T territory that will only have LTE or satellite choices. These need special attention in policy.
Wires are much faster than wireless for at least the next decade most places and have far more capacity. So wireless is only a partial substitute. The price differences with Europe make clear that the U.S. situation of only telco vs cable is weak competition and leads to much higher prices. That’s a market failure and even conservative economists should be calling for government to do something.
The folks who influenced the final broadband plan - Genachowski, Levin, and Strickling - were strongly against government action to compensate for weak competition. Unless we get new, strong leadership, the U.S. will remain among the most expensive countries for broadband. The networks are good except for the last few %, because we have cable to 96% and Verizon jumped in in 2009 with a 98% LTE build. But the prices are inexcusable.
LTE Coverage Doesn’t Mean 5-10 Megabits for All
Verizon is consistently delivering 5-12 megabits down in most tests. But the usual maps of “coverage” are somewhat exaggerated and include areas with weak coverage and hence lower speed. Both AT&T and Verizon claim 100% coverage of Manhattan, which I factchecked a while back with AT&T. In reality, some dead spots remain and frequently areas of weak coverage and sharply diminished speeds. (I believe AT&T in particular has improved coverage from two years ago.)
The FCC wants to expands the objective testing of performance to wireless. That’s even more important now, when many will depend on LTE for broadband. AT&T strongly opposed the testing, claiming the company reported all necessary information accurately. Because I knew there were problems in my hometown, I thought their claims likely unfounded. Now that LTE performance is even more critical, I hoped AT&T will abandon their opposition and the program move forward.
Jules Genakowski measured actual broadband speeds with the very effective Sam Knows measuring tool. OFCOM co-developed it and produced a far more accurate picture of Britain’s networks than ever before. The U.S. results contradicted what Genakowski and most of the pundits had claimed. With one major exception, all the major DSL and cable networks were reliable and generally delivered consistent speeds. Decent DSL and cable networks are not congested and have relatively few problems. Speeds don’t go far down even during peak usage.
The exception, which almost no one I know expected, was Cablevision. Apparently they weren’t doing a good job of splitting nodes when needed. When the problem was exposed by the FCC, Cablevision immediately corrected it. In the next test period, the results were much better. This was a triumph for JG.
Sunlight is often the best disinfectant.
Voice over LTE is Better than Landlines; Data has Capacity Limits.
Voice calls can sound better over LTE than they ever did on copper and far better than today’s mobile. The iPhone5 and most quality mobiles today have HD Voice built in, although the U.S. hasn’t turned HD on yet and may only experiment until 2014-5. Even HD VoLTE uses only a small portion of the available capacity and can easily serve all the voice needs of rural areas. Copper is more resilient in disasters and carries power for the handset. Mobile failed miserably during Hurricane Sandy and clearly needs upgrades for reliability. AT&T is already selling a small box to connect your existing “landline” phone to the mobile network; it’s a $10 addon if you have an AT&T mobile account and they are selling it aggressively in Verizon territory. It might be worth including a battery or at least a connection that lets users plug in their own.
Data over LTE currently is severely restricted, with 2-10 gigabyte caps common. The speed is typically 5-10 meg down, a couple of meg up, and sometimes better. Since the average broadband user already is drawing over 20 gigabytes/month, living with LTE broadband is a major compromise. LTE Advanced, some of which is already available, has 10x the capacity. Part of the approval process for AT&T’s copper shutdown should be rapid deployment of Advanced, realistic in 2016-2018. LTE Advanced capacity can be 10x LTE’s capacity, although even that’s not enough for heavy video use. Without a special push, most of these areas probably would not get Advanced capacity until next decade.
If you take care of those not reached with LTE and price capacity reasonably, it's a good plan overall to eliminate the copper. In theory, turning off copper is plausible. In practice, it could very easily be disaster.
Bringing down AT&T prices is not an easy task for the current FCC. All wireline competitors remaining will be cut out and wireless competition for decent broadband will be minimal. AT&T and Verizon are pricing LTE at twice the European norm according to the NY Times. A below average broadband user drawing 20 gigabytes/month would pay $200 at AT&T’s current rates.
If broadband for all is important public policy, those rates needed to be set by law or similar at a much lower rate before this plan is approved. The FCC can’t be “technology neutral” but will have to insist AT&T be a pioneer upgrading to LTE Advanced at a high profile and then rapidly move the unwired areas beyond Advanced. The homes without wires will have a seriously inadequate service in the current generation of LTE.
Fortunately, Bob Quinn of AT&T writes “We know that there are important policy issues that have to be addressed that are just as important as the technical and technology questions, and we are eager to engage in that discussion.” In fact, they are deeply committed to this for business reasons so will do what the FCC requires. Time for the commission to put consumers first.
Here's their release
AT&T to Invest $14 Billion to Significantly Expand Wireless and Wireline Broadband Networks,
Support Future IP Data Growth and New Services
Improved Capital Structure is Foundation for Investment and Accelerated Growth
New York, New York, November 07, 2012
4G LTE network expansion expected to cover 300 million people by year-end 2014
Wired IP broadband network expected to expand to 75 percent of customer locations in AT&T's 22-state wireline service area by year-end 2015
Fiber deployment expected 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
99 percent of customer locations in wireline service area expected to have high-speed
IP Internet access via IP wireline and/or 4G LTE
Investment expected to be approximately $14 billion over three years — $8 billion for wireless initiatives, $6 billion for wireline initiatives; Total capital spending expected to be approximately $22 billion for each of next three years
Revenue mix following investment period expected to be 90 percent from high-growth areas – wireless, wireline data and managed IT services
Consolidated revenue growth improves to GDP-growth-rate-plus 100 basis points, assuming stable economy
EPS expected to grow mid-single digits next 3 years; opportunity for stronger growth going forward
AT&T increases quarterly dividend 2.3 percent; 29th consecutive annual increase Note: AT&T's analyst conference will be webcast live via the Internet at 9 a.m. ET on Wednesday, November 7, 2012, at www.att.com/investor.relations.
AT&T* today announced plans to invest $14 billion over the next three years to significantly expand and enhance its wireless and wireline IP broadband networks to support growing customer demand for high-speed Internet access and new mobile, app and cloud services. The investment plan – Project Velocity IP (VIP) – expands AT&T's high-potential growth platforms, helping drive continued increases in revenues from existing and new products and services, and earnings per share.
“This is a major commitment to invest in 21st Century communications infrastructure for the United States and bring high-speed Internet connectivity — 4G LTE mobile and wireline IP broadband — to millions more Americans,” said Randall Stephenson, AT&T chairman and chief executive officer. “We have the opportunity to improve AT&T's revenue growth and cost structure for years to come, and create substantial value for shareowners.
“Revenues in our key growth areas — wireless data, U-verse and strategic business services — are all growing at a strong double-digit rate. Project VIP expands our potential in these key platforms and makes them available to many more customers,” Stephenson said. “With our strong balance sheet, these capital investments are manageable. We are very confident in our ability to execute this plan. These are things we've done before – logical extensions of proven technologies and already successful businesses.
“Given our confidence in our industry and in our future, today we increased our quarterly dividend for the 29th straight year. I'm confident we can continue to deliver for our owners as we invest to position AT&T for stronger growth in the years ahead,” Stephenson said.
AT&T's Project VIP consists of several individual wireless and wireline initiatives, which are outlined below.
Investing in Mobile Internet Growth
4G LTE Expansion. AT&T plans to expand its 4G LTE network to cover 300 million people in the United States by year-end 2014, up from its current plans to deploy 4G LTE to about 250 million people by year-end 2013. In AT&T's 22-state wireline service area, the company expects its 4G LTE network will cover 99 percent of all customer locations.
Spectrum. AT&T has acquired spectrum through more than 40 spectrum deals this year (some pending regulatory review) and has plans to buy additional wireless spectrum to support its 4G LTE network. Much of the additional spectrum came from an innovative solution in which AT&T gained FCC approval to use WCS spectrum for mobile broadband. Between what the company already owns and transactions pending regulatory approval, AT&T expects to have about 118Mhz of spectrum nationwide. The company will continue to advocate with the FCC for release of additional spectrum for the industry's long-term needs.
Densification & Small Cell Technology. As part of Project VIP, AT&T expects to deploy small cell technology, macro cells and additional distributed antenna systems to increase the density of its wireless network, which is expected to further improve network quality and increase spectrum efficiency.
Investing in Wireline IP Network Growth
AT&T plans to expand and enhance its wireline IP network to 57 million customer locations (consumer and small business) or 75 percent of all customer locations in its wireline service area by year-end 2015. This network expansion will consist of:
U-verse. AT&T plans to expand U-verse (TV, Internet, Voice over IP) by more than one-third or about 8.5 million additional customer locations, for a total potential U-verse market of 33 million customer locations¹. The expansion is expected to be essentially complete by year-end 2015.
U-verse IPDSLAM. The company plans to offer U-verse IPDSLAM service (high-speed IP Internet access and VoIP) to 24 million customer locations in its wireline service area by year-end 2013.
Speed Upgrades. The Project VIP plan includes an upgrade for U-verse to speeds of up to 75Mbps and for U-verse IPDSLAM to speeds of up to 45Mbps, with a path to deliver even higher speeds in the future.
In the 25 percent of AT&T's wireline customer locations where it's currently not economically feasible to build a competitive IP wireline network, the company said it will utilize its expanding 4G LTE wireless network -- as it becomes available -- to offer voice and high-speed IP Internet services. The company's 4G LTE network will cover 99 percent of all in-region customer locations. AT&T's 4G LTE network offers speeds competitive with, if not higher than, what is available on wired broadband networks today. And in many places, AT&T's 4G LTE service will be the first high speed IP broadband service available to many customers.
Fiber to Multi-Tenant Business Buildings. AT&T plans to proactively expand its fiber network to reach an additional one million business customer locations – 50 percent of the multi-tenant business buildings² in its wireline service area. AT&T expects the proactive fiber deployment to increase business revenue growth, accelerate provisioning and facilitate the installation of distributed antennas systems and small cell technology to help offload wireless network traffic.
Project VIP Supports New Growth Initiatives
Expanding AT&T's 4G LTE network to 300 million people, combined with its leadership in smartphones and data access, provides a large platform for the next wave of growth in mobility, including:
AT&T Digital Life. A nationwide all IP-based home security and automation service set to launch in 2013 that will let consumers manage their home from virtually any device — smartphone, tablet or PC.
Mobile Premise Solutions. This new nationwide service, available today, is an alternative for wireline voice service and in the future will include high-speed IP Internet data services.
Mobile Wallet. AT&T is participating in the ISIS mobile wallet joint venture. Market trials are underway in Austin, Tex. and Salt Lake City today.
Connected Car. More than half of new vehicles are expected to be wirelessly connected by 2016. AT&T is positioned to lead the industry as the company's capabilities expand from vehicle diagnostics and real time traffic updates to consumer-facing applications that tie into retail wireless subscriber data plans. AT&T already has deals with leading manufacturers such as Ford, Nissan and BMW.
With business customers, AT&T expects Project VIP will strengthen its ability to pursue multiple new billion-dollar business opportunities in four key growth areas: strategic network services, cloud, security and mobility solutions.
Investment for Growth
Driven by Project VIP and assuming a stable economy, AT&T expects that during the investment period:
Earnings per share³ will grow in the mid-single-digit or better range, with an opportunity for stronger growth going forward.
Consolidated revenues will grow to GDP plus 100 basis points. AT&T expects its growth drivers — wireless, wireline data and managed IT services — will comprise 90 percent of total revenues by 2016, up from about 80 percent today.
Consolidated margins will expand.
AT&T has taken significant steps to further improve its capital structure and strengthen its balance sheet, which provides a financial footing to invest for growth. Over the last three years, the company has reduced its debt by approximately $9 billion, has taken advantage of historically low interest rates to refinance $20 billion in debt, and has reduced its cost of debt by 60 basis points. AT&T recently filed a proposal with the U.S. Department of Labor to contribute a preferred equity interest in its wireless business, valued at $9.5 billion, to the company's pension trust, which will substantially improve the funded status of the plan.
AT&T expects to increase its capital intensity to the high end of the mid-teens as a percentage of revenues in the next two years, returning to normal levels in 2015. AT&T expects capital spending to be approximately $22 billion for each of the next three years, then return to pre-Project VIP levels.
AT&T expects to complete in 2012 its December 2010 share repurchase authorization of 300 million shares and to continue to buy back shares as market conditions allow under its July 2012 300 million share repurchase authorization. Through October 19, 2012, AT&T had repurchased 271 million shares.
Over the next two years, AT&T expects its net-debt-to-EBITDA ratio to move from 1.42 at the end of third-quarter 2012, up to the 1.8 range, aligning with lower interest costs and debt capacity. The company expects this ratio to trend back down in 2015. The company anticipates tapping the debt markets to take advantage of historically low interest rates, with a long-term goal of maintaining its credit rating in the “A” range or higher.
And AT&T remains committed to returning value to shareholders. Year to date the company has returned more than $19.6 billion to shareholders through dividends and share repurchases. And today, AT&T announced it will increase its quarterly dividend for the 29th consecutive year. The AT&T board of directors increased the quarterly dividend rate from $0.44 to $0.45 a share on a quarterly basis, which would be an increase from $1.76 to $1.80 a share on an annualized basis. The dividend will be payable on Feb. 1, 2013, to common stockholders of record on Jan. 10, 2013.
¹Customer locations for U-verse are those locations which are eligible to receive U-verse.
²Business buildings with 6 or more tenants
³EPS guidance does not include one-time significant items that may occur, such as mark-to-market pension adjustments, impairments and other items