AT&T 1-Gbps Coming to Austin, Texas mid-2014

As promised, AT&T will activate at least some locations in Austin, Texas with a symmetrical gigabit access network by about mid-2014, perhaps not coincidentally when Google Fiber also is slated to begin sales.

The more-immediate import, for many potential customers, is the first part of the upgrade, to a symmetrical 300-Mbps connection, starting for some locations by December 2013.

AT&T, which says it is beginning construction of its gigabit network in Austin, Texas, might reach the gigabit standard at some locations by mid-2014.

AT&T says it is starting with “tens of thousands” of customer locations throughout Austin and the surrounding areas at the end of 2013 (300 Mbps), with additional local expansion planned in 2014, though no specific targets were immediately revealed.

Skeptics might say it is important that AT&T did not announce pricing, either, though others might counter that the launch is not expected until December 2013. A rational service provider might not want to reveal too much detail until service actually is available.

But AT&T also faces a problem Google Fiber does not, namely an installed base of customers whose perception of what a reasonable Internet access offer looks like will change, if AT&T starts selling gigabit connections for prices anywhere close to what Google Fiber offers.

The problem is the same as AT&T and other telcos faced when VoIP began to get traction in the market. Telcos had scores of millions of legacy voice accounts sold for healthy premiums compared to many of the upstart VoIP providers.

So the strategic challenges was simple: match VoIP prices and features, or essentially refuse to match those offers and face erosion of accounts. One might argue that is not smart, but the math works.

Instead of taking an across the board revenue hit on all existing lines, telcos mostly decided to lose market share over time, while maintaining prices on a dwindling customer base. To be sure, customers were deserting in any case for mobile alternatives.

AT&T will face the same issue with gigabit networks, as the new value-price relationships will be reset, by its own gigabit offer and Google Fiber and other offers that are hovering around a 1-Gbps for $70 to $80 retail pricing range.

That of course has implications for the value-price relationship for the 300-Mbps service and all other slower speed services, which essentially will be priced in relation to the 1-Gbps service.

Google Fiber, for example, already has done so. Customers can sign up for free 5 Mbps service, guaranteed for seven years.

But Internet access and voice markets have different strategic implications. As AT&T did decades ago in the stand-alone long distance market, a choice to harvest legacy revenues makes sense if a product is in the mature and declining part of its life cycle.

Internet access is in some ways "mature," but has a different strategic character, as it is the foundation for most, if not all, other services fixed network service providers will offer.

Though it will face criticism for not moving faster, AT&T and other major ISPs likely have concluded that although they have to respond to the gigabit challenge posed by Google Fiber, they will respond market by market, as they typically always do, mindful of the implications for their existing high speed access revenue streams.

AT&T likely also has concluded that rushing to gigabit speeds is a mistake, as most consumers are likely to be quite happy with 300-Mbps services that cost less.

Time Warner Cable's Chief Financial Officer Irene Esteves continues to get coverage every time she speaks in an investment or other conference about the state of consumer demand for 1-Gbps access, seemingly prompted in virtually every case by Google Fiber's Kansas City 1-Gbps network and service. Esteves repeatedly has said that Time Warner Cable does not see the demand for such speeds.

Some will be tempted to argue this is a typical effort by a quasi-monopolist to dismiss a competitor's better and disruptive offering, and rather incorrect, since people in Kansas City do seem to be buying Google Fiber.

A few might say the statement is an effort to stave off, as long as possible, or perhaps indefinitely, the need to invest major new sums in access technology.

Others will note that since Time Warner Cable faces Google directly in Kansas City, the question is rather an obvious question for investors to ask. There is some truth to all such interpretations.

On the other hand, to understand the comment that "we just don't see the need of delivering that to consumers." one has to unpack the statement and put it into context.

Esteves is not necessarily dismissive of Google Fiber.  "We're in the business of delivering what consumers want, and to stay a little ahead of what we think they will want," she said, and seems always to say when asked about the state of demand for 1-Gbps access.

A fair way to rephrase might be "At the moment, at the prices we would have to charge, we believe few customers would want to buy 1-Gbps access." The statement is highly conditional.

At very low prices, many consumers would buy 1-Gbps. At significant prices, far fewer will do so. At high prices, a small percentage will purchase.

A corollary might be that "right now, at significant prices compared to our other offerings, few consumers we sell to would willingly pay the incremental prices to get the fastest speeds."

The "consumers don't want it" is a highly conditional statement. Time Warner Cable and all other executives know full well there is some set of circumstances that could drive very high take rates.

Time Warner Cable's business objective is to supply any future forecast level of demand, under competitive market conditions, at a profit, without investing prematurely or wildly in ways that harm its financial prospects.

Some might say Time Warner Cable is craven, stupid or just wrong about end user demand for 1 Gbps access. That's unfair and incorrect. Time Warner is making a highly conditional statement about demand under a finite set of circumstances. The answer will be different under a different set of specific circumstances.
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