What's Upside for AT&T Gigabit Networks?

Just how AT&T will fare, financially, by selling 1Gbps service in the Austin, Texas market is a fair question. Similar questions were asked about the Verizon Communications FiOS deployment as well. 

As shareholder friendly as AT&T has been, some will begin to worry about the potential impact of a widespread gigabit network deployment, and that is a reasonable concern, especially given the $70 a month retail price, essentially dictated by Google Fiber's $70 a month price point. 

Some of us who have watched fixed network service providers grapple with the loss of voice revenues will see a pattern that essentially means revenue and profit upside from the access service will be rather modest.

Many years ago, one telco pondering fiber to the home essentially cited strategic reasons for the investment, even if "traditional return on investment" rationales were tough to justify.

In essence, the argument was that the investment had to be made so that the telco could swap market share with the local cable operator. Essentially, the telco would gain video entertainment revenues, while the cable company took voice customers, while the two competitors split the high speed access market.

Some of you may have heard the quip, in answer to the question "what's in it for me?" that "you get to keep your job." 

Basically, that was the strategic rationale for fiber to the home. The telco would remain in business. Perhaps that will provide scant comfort for investors. But the logic remains fundamentally sound, if not a recipe for huge increases in new revenue and profit margin.

In the end, AT&T might find it faces a similar challenge, as did Verizon Communications. To the extent a fixed network access service has value in the future, it will be as the provider of the highest bandwidth, lowest cost per bit Internet access service. 

That doesn't mean, and likely cannot mean, that the Internet access service, or even voice and video entertainment are sufficient revenue drivers in the future. But the highest bandwidth, with the lowest cost per bit, will be the foundation.

No, it might not provide the highest absolute return on investment. But AT&T will be able to keep its business. 



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