Wednesday, October 17, 2012

AT&T Rural Access Lines Illustrate Problem

It isn't yet clear what AT&T will conclude about its rural network holdings, in particular the issue of whether to invest in faster broadband capabilities, or sell the assets. It's a hard question since there are few, if any, potential buyers at the moment. AT&T is slated to announce its decision about rural assets in November 2012, so we should know fairly soon.

Fitch Ratings notes that AT&T has suggested it is considering various technologies — both wireline and wireless — to increase available broadband speeds in rural markets. But AT&T also has said a sale or restructuring of those assets would be considered.

But buyers do not seem available. Firms such as CenturyLink, Windstream and Frontier Communications still are digesting large earlier acquisitions, and are not viewed as able to bid for such assets at the moment. 

AT&T could essentially "do nothing," and allow market share for high-speed access to gradually shift to cable competitors. That essentially would lead to a dwindling revenue base, and a diminished equity value for those assets, but some might argue sale or harvesting strategies are the most logical, given the minimal revenue upside from a major upgrade cycle in rural fixed networks, compared to investment in mobile networks. 

In essence, that illustrates a broader business problem. It increasingly is difficult to earn a reasonable financial return from rural fixed network assets, in part because of competition from cable TV operators, satellite providers, terrestrial wireless firms and other telcos. 

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