Has FTTH Business Case Changed for AT&T?

As difficult as the fiber to home business model has been for firms such as AT&T, some positive changes to the business model have occurred. First, take rates seem to have increased. 

Where AT&T has been deploying its new FTTH facilities, it is seeing that almost 80 percent of the net additional accounts were not AT&T customers prior to the deployment, according to John Stankey, AT&T CEO. So AT&T is capable of taking market share from cable companies. 

In past years, AT&T and Verizon, for example, might have been doing well to get to about 40 percent overall take rates, over several years of marketing, and most were likely upgrades of existing customer accounts. 

Since cable share of the installed base is about 70 percent in most markets, AT&T has room to grow if it can take share. 

It is conceivable that the value is not just gigabit speeds, but more upstream speed, compared to cable hybrid fiber coax offerings, which support gigabit downstream speeds as well, but are more limited in return bandwidth. 

But deployment efficiencies also have been reaped, and it may be possible to do more, once the neighborhood-by-neighborhood FTTH gigabit networks have been built. There are marketing economies and physical plant economies that would allow metro-wide marketing, for example. 

That changes the consumer fixed networks business into a growth opportunity that AT&T previously had not deemed so feasible. Right now AT&T believes the current business model works for about another 30 million U.S. homes. Any subsidies would grow that number. 

Right now, the new FTTH builds produce profit margins “in the mid- to upper teens,” said Stankey. While that is not the 40-percent range that once was feasible in many parts of the access business, that figure is notable because it is not a negative number. 

“I'm not going to be happy until we have a 50-50 share split in places where there's two capable broadband providers,” Stankey says. That means a split of the market with cable operators, where today cable has about 70 percent share of the installed base. 

Today, “we've driven to 40 percent penetration levels to basically be the threshold for us to get to warrant an investment,” said Stankey. 

If a new infrastructure bill passes, that could well result in subsidies for building new FTTH plant that favorably affect the business model for AT&T and others.