IHS Global Insight Perspective | |
Significance | AT&T has announced the broad direction of its investment strategy over 2009. |
Implications | Spending will be flat with 2008, with HSPA upgrades, wireless footprint extension, and slower U-Verse deployment notable features. |
Outlook | AT&T is more conservative in its approach than Verizon, its key competitor in the wireless industry, relying on HSPA over LTE in the short term. AT&T has also opted for VDSL over FTTH in the fixed-line business, where cable companies are the main competition. This approach has lower capital costs but needs to be balanced against the effect on consumer regard and uptake of falling behind in the technology race. although applications need to require the capabilities of the technology to make a real difference in user demand. |
AT&T has reported some details for its capital spending in 2009. Total investment of between US$17 billion and US$18 billion is expected, in line with the US$17.7 billion spent in 2008 and noted by AT&T as "expected to exceed the planned investment of any other U.S. telecom company". Two-thirds of these funds will go towards enhancing the wireless and wired broadband networks to increase speeds, coverage, and capacity with broadband traffic noted to have grown by 50% year-on-year (y/y) on average. Chief Executive Randall Stephenson noted that demand is expected to escalate again when the economy rebounds—2008 saw a greater-than-expected drop in growth, with net additions to wired and wireless broadband falling from 2.6 million to 1.5 million (see United States: 29 January 2009: AT&T Sees Continued Strength in Wireless Growth, But Profits Fall).
Wireless Networks
Investment in the wireless network will focus on improving its broadband and data capabilities and improving coverage and reliability across the existing 350 metropolitan areas covered with 2,100 new cell sites. AT&T plans to make 3G services available in 20 new markets over the year, and 850 MHz spectrum will be used to increase capacity while also facilitating in-building coverage as it has better propagation characteristics and penetration than the 1900 MHz band. Notably, no mention is made of the 700 MHz spectrum acquired in 2008 (see United States: 21 March 2008: AT&T, Verizon Dominate 700 MHz Auction and United States: 10 October 2007: AT&T Buys Up 12 MHz of 700-MHz Spectrum for US$2.5 bil.). While Verizon is ramping up spending on long-term evolution (LTE) in 2009 with initial deployments by the end of the year followed by a rapid roll-out in 2010, AT&T has a more conservative approach that will use more incremental upgrades to the HSPA network technology in place before moving to LTE. The latest reports, such as one from Unstrung, quote AT&T's senior vice-president of architecture and planning, Kris Rinne, as putting LTE trials in mid-2010 with the commercial launch for LTE services in mid-2011—coming from earlier reported targets of 2012. This will benefit from some maturity in the network equipment and user device markets. In part, AT&T can afford greater reticence with trials of 7.2 Mbps HSPA, rising to 20 Mbps, pushing capabilities forward.
AT&T notes it will also begin trialling "AT&T 3G microcells" for general availability—femtocells connected to home broadband networks to enhance in-building coverage as recently launched by Verizon. A web page accidently released in January indicated that AT&T's plans for the femtocell service were more in line with Sprint—offering cheap calling from the home—than Verizon's, which currently appears limited to improving in-home coverage. Other reports have emerged that AT&T may use equipment from Cisco that integrates femtocells with Scientific Atlanta set-top boxes—which, if correct, could facilitate powerful convergence features.
AT&T also notes that it will continue to expand the 20,000 domestic hotspot footprint it gained when it acquired Wayport, with Wi-Fi forming a significant plank of AT&T's connectivity strategy to add value to basic mobile and fixed-line broadband (see United States: 7 November 2008: AT&T to Acquire Wi-Fi Hotspot Company Wayport for US$275 mil.)
Wireline
AT&T is continuing with the U-Verse deployment with the target of increasing the footprint coverage from 17 million homes today to 30 million by 2011—although it is noted that this is a delayed schedule from the earlier target of 30 million homes by 2010, partly intending to minimise the need to raise and then pull back on employment levels. AT&T will also continue expanding DSL coverage and the IP/MPLS backbone networks that completed the upgrade to 40 Gbps in October 2008 (see United States: 11 December 2007: AT&T Lights Up 40 Gbps Backbone, Taps Cisco for Core Routing Solution). AT&T has already detailed how some US$1 billion will be invested on the Global IP backbone network but notes that it will invest in "…multiple new subsea fiber-optic cables to maximize capacity and reliability of backbone connections, and will continue to expand the global reach of access solutions for enterprise customers" (see World: 25 February 2009: AT&T Describes Plans for US$1-bil. Global Investment).
Basic research will continue at AT&T labs in next-generation technologies including LTE, 100 Gbps backbone technology, and emerging IP applications. Three thousand jobs will also be created supporting the growth areas of mobility, broadband, and video services, although it is noted that cuts have also been targeted in legacy areas (mainly wireline voice), citing the effects of a shift away from landline voice, economic pressures, and more streamlined organisational structures.
Outlook and Implications
This provides a broad outline of the areas of investment over the coming year, indicative of the strategy for AT&T—essentially a smooth transition through new technologies and investing in broadening footprints rather than a potentially wasteful surge in spending. New technologies are likely to be available when they are ready, for example second-generation (or at least de-bugged) network equipment and an ecosystem of LTE devices will be available. This cautious approach reflects the U-Verse strategy and compares against the brasher strategy of Verizon, pushing the envelope for an early LTE deployment and investing heavily in high-bandwidth fibre-to-the-home (FTTH) installation. LTE technology may gain some early leads with users in addition to bragging rights (with concomitant marketing advantages), and in the case of FTTH has greater future proofing, but runs higher risks than AT&T's more staid approach.
This information is notably released the day after U.S. Department of Agriculture Secretary Tom Vilsack, Acting Federal Communications Commission Chairman Michael Copps, and U.S. Dept. of Commerce Senior Advisor and Acting Chief of Staff Rick Wade launched the comment period for the American Recovery and Reinvestment Act’s Broadband Initiative. Stephenson noted that "We recognize the continuing importance of investing in critical network infrastructure, which plays a key role in driving commerce, innovation and job growth." In part it is likely that this is a position statement emphasising the level of investment already engaged in by AT&T. This may help to leverage greater influence on the direction of development for the planned national broadband strategy that is funded by a US$7.2-billion grant programme, targeting underserved rural areas (see United States: 13 February 2009: Broadband Tax Credits Dropped from Stimulus Package in U.S.).