Wednesday, October 7, 2020

AT&T Halts DSL Sales. It Has To

AT&T says it has stopped selling new digital subscriber line accounts, a move that predictably led to complaints by the Communications Workers of America. In areas where AT&T operates fixed networks, but does not have fiber to home available, that essentially means AT&T is abandoning the effort to compete with cable operators in the fixed network broadband market. 


Like it or not, AT&T was delivering speeds of about 6 Mbps where it was selling DSL on copper access lines. AT&T reported 653,000 total DSL connections at the end of its second quarter, compared to 14.48 million on its fiber optic and hybrid fiber services.


DSL on copper access lines did not qualify as “broadband,” using the Federal Communications Commission definition of 25 Mbps in the downstream. 


More broadly, AT&T earns most of its revenue from mobility, business customer services and content services. In the second quarter of 2020, total revenue was about $33.6 billion. 


Mobility generated more than $17 billion in the quarter; business fixed network services produced $6.4 billion in revenue; while content operations (Warner Media) represented $6.8 billion; and Latin America about $1.2 billion.


In fact, broadband access revenues are such a relatively-small portion of total revenues that all broadband access revenues are almost buried in the “entertainment” segment whose revenues are anchored by video entertainment services, which produced about $10 billion in revenue in the second quarter of 2020. 


Video subscriptions represented more than $7 billion of that total, and most of that was delivered by DirecTV, the satellite service. 


In the second quarter of 2020, AT&T generated about $2 billion in consumer broadband access revenues. All consumer fixed network voice services might have produced less than $1 billion worth of revenue. 


There is some smallish contribution provided by linear video on the fixed network, but all together, fixed network triple play services likely generate no more than $4 billion a quarter. 


Another way of putting matters is that AT&T now generates less than 12 percent of total revenue serving consumers on its fixed network. 


Simply put, consumer fixed network services--despite the cost of the network, do not produce much revenue or profit. All services in the entertainment group create only about $2.3 billion in cash flow (EBITDA). 


So it is possible that consumer fixed network operations now produce zero actual contribution to consumer fixed network cash flow. 


Like it or not, where AT&T has fixed networks, it generates rather slim amounts of revenue, and possibly no profit. Even if AT&T steps up investment in FTTH, cable operators have about 70 percent of the installed base, and all of the net new additions nationwide. AT&T would be playing catchup in broadband, at best. 


It no longer appears that voice or linear video will grow in the future, either. That leaves mobility and fixed wireless as the primary way AT&T can invest in faster broadband, in many areas, as AT&T is unlikely to earn a return on FTTH deployment. 


Competition and technology essentially have destroyed AT&T’s consumer fixed network business, while obvious revenue growth lies elsewhere. Cable broadband, satellite broadband and other alternatives will have to suffice for many customers across some of AT&T’s footprint.


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