Big Divestiture of Rural Lines Coming at AT&T?

Randall L. Stephenson, AT&T chairman and CEO, has a problem Verizon also faces, namely “under-performing assets.” Among those assets are rural operations, especially given the need to upgrade substantially for broadband access services.

“We've all been trying to find a broadband solution that was economically viable to get out to rural America and we're not finding one to be quite candid,” Stephenson said during AT&T’s fourth quarter 2011 quarterly earnings call.

“The best opportunity we have is LTE,” he said. If that sounds familiar, it should.

Verizon Wireless recently launched its HomeFusion service, which will offer fixed broadband access using the Long Term Evolution network initially in Dallas, Nashville, Tenn., and Birmingham, Ala., ultimately will provide a facilities-based fixed wireless service anywhere Verizon’s fourth generation network operates. service.

So what is the broadband solution for AT&T’s rural customers? “We don't have one right now,” he said. Since fiber to the home exists, that answer essentially means AT&T has concluded the economics won’t work.

“We're going to have to either completely restructure those businesses,” he said. “ The cost structure has to change, not only the wage and benefit cost structure but just the cost structure associated with the technology, legacy TDM infrastructure out there.”

Those “fundamental changes” will be addressed “in short order,” Stephenson said. Many would not be surprised if those changes involved significant divestment of rural operations, as Verizon has done.

So some might characterize the HomeFusion service as a facilities-based way for Verizon to sell fixed broadband outside the areas where it already provides FiOS or other fixed network service. One wonders whether AT&T might also think about that approach.

What it means, perhaps, is that the Verizon Wireless national Long Term Evolution network represents a facilities-based network that can be used to sell fixed broadband connections, to many consumers, “out of region” with respect to Verizon’s fixed line service territory. And that out of region business might represent 80 percent of U.S. homes.

For both AT&T and Verizon, though, it also appears that ownership of smaller and rural exchanges simply does not make sense anymore. Whether another owner, with a different cost structure, could deploy fiber to the home or some other broadband access network, and earn an adequate return, is the issue.