Summary
We expect dramatic cutbacks in U-verse CAPEX over the next two years. The service has pretty much been a bust. For AT&T, 3Q09 will probably “be identified as the quarter in which the U-verse star started to fade.”
Analysis
AT&T’s U-verse will not be “getting in stride” or “picking up steam.” There are indications that point to significant pullback on CAPEX for the service in 2010 and 2011. The reason why these are not “hyper growth" times for U-verse is that the main technology used was doomed from the start.
Many engineers at AT&T knew that fiber to the node would never fly in a big way with high-speed data or video services. Certainly, HD was always going to be problematic with copper. The first two original field trials at San Antonio were absolute disasters. The response from the anti-FTTP crowd at the time was that most trials of any type turn out that way. No, that is not really correct.
AT&T has been talking about advanced technologies, such as bonded VDSL2 – anything one can do instead of running fiber to the home – and it is always perpetually six months away. In general, manufacturers cannot rely on any kind of guidance from the service provider because it has tended to be well short of the mark. With AT&T being such a huge market for some of these vendors, it makes planning for production somewhat of a nightmare.
It seems the plan is the same as what is happening on the wireless side at AT&T. There is conflict over continuing to upgrade the 3G network, which has its share of problems, and moving to 4G. The solution seems to be to not move in a significant way in either direction. This same kind of inertia will likely occur with the pullback on U-verse. There are no indications that AT&T has decided to move to FTTP in a meaningful manner.
When most of AT&T was put back together, so was the old Bellhead mentality. If AT&T had not been broken up in 1984, it is quite possible that perhaps only 50 percent of the switches would be digital and there would have been very limited FTTP in what is now the Verizon territory. As long as the infighting continues to occur at the present AT&T, there will likely be more inaction than forward movement.
AT&T is opening up the door to significant penetration by Verizon in its major cities. As far as expansion outside of the Verizon traditional footprint, in order to attack AT&T is concerned, expect that at the start, much of it will occur near Dallas, Los Angeles, and Tampa, (the ex-GTE territories). The carrier will want to play off of its success in the areas nearest existing systems. Later, Verizon will likely move into AT&T incumbent areas such as Chicago and San Diego, where the service provider is highly rated by companies like J.D. Power and Associates. Afterwards, there will likely be forays into other cities such as Atlanta, Miami, etc. in the AT&T territories -- wherever there is an opportunity to go after large enterprises. As more of a CLEC, it will have greater flexibility in just concentrating on big businesses.
Samuel Greenholtz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
