AT&T FTTH to Pass 14 Million Homes by End of 2019

AT&T says it will have connected 14 million U.S. homes with fiber-to-home facilities by the end of 2019.  If AT&T passes a total of 62 million homes, that implies FTTH will be about 23 percent of total passings.

You might wonder why AT&T apparently has been so slow to upgrade, given recent evidence that, where it chooses to build optical fiber access facilities, it can get 50-percent take rates, as well as higher dual-play revenues (video entertainment plus internet access).

But AT&T is opportunistic about FTTH for good reasons: the upside is not as great as you might think. Look at cash flow.

The mobility business unit represents about 50 percent of AT&T’s adjusted cash flow (EBITDA).

WarnerMedia represents about 17 percent of the company’s revenue and adjusted EBITDA. Business Wireline represents about 17 percent of the company’s adjusted EBITDA, while the Entertainment Group (consumer fixed network internet access, voice and entertainment video) represents about 15 percent of the company’s adjusted EBITDA.

In other words, less than 15 percent of AT&T revenue comes from sources other than the consumer fixed network, since the DirecTV service mostly uses satellite delivery. Also, keep in mind that DirecTV, for the moment, is delivered primarily by satellite, and likely represents $8.5 billion in revenue. So it is possible that consumer landline services now contribute only about seven percent of AT&T revenue.

In terms of revenues, mobility represents 40 percent, the entertainment group 26 percent and  business wireline about 15 percent of total quarterly revenue of $45.7 billion.

But what might really stand out is the 15 percent contribution from AT&T’s landline voice, video distribution and internet access products (the triple play suite). These days, consumer internet access, voice and entertainment video (recall that AT&T is the largest U.S. subscription video provider), contribute relatively small amounts of cash flow.

On the other hand, as DirecTV shifts to over-the-top streaming delivery, the quality of access network speeds should become more important. Still, it is an exquisite balancing act, as gross revenue for the streaming services is going to be less than AT&T earns from the linear DirecTV service.