AT&T exec: Mobile wireless primary driver of fiber deployment (and John Donovan's inapt cite of Moore's Law)

Donovan: AT&T Beating Moore's Law | Light Reading: Part of achieving those capex gains while continuing to meet rising demand for bandwidth is AT&T's integrated planning. While its Project VIP local fiber deployment initiative has wound down, the company is still able to push fiber more deeply into some areas, based on the need for business services or backhaul for cell towers and small cells, Donovan said.

"We have a really good cost curve on incremental costs for wireless," he said. "We are still putting fiber out where it is economic -- that is a big part of our program."

Yet another project to nominally push fiber to premises -- like Project Pronto and  Project Lightspeed before it-- is going away as AT&T like other big telcos shifts its focus away from residential and small business premise service to the mobile segment.

Donovan's invocation of Moore's Law unfortunately perpetuates the incorrect analogy of telecommunications service as a consumptive utility like electric power or natural gas. In the world of telecommunications, Moore's Law more properly applies to the growth in consumer bandwidth demand as I blogged in 2010. Additionally, Moore's Law applied to the total microprocessor market unlike the segmented markets employed by legacy telephone companies like AT&T.

DirecTV CEO's hopes for AT&T deal could be disappointed

DirecTV CEO Mike White

DirecTV CEO Mike White

DirecTV CEO Mike White

White: AT&T Deal Unlocks Potential | Multichanne: White also sees a big customer service opportunity in the deal, allowing DirecTV to offer more products in a single truck roll.

“To me the real opportunity is growth,” White continued. “For us this is a real unlock, it unlocks our way to better serve rural areas, when you think about the 15 million [customer] build out of rural areas. We have been salivating to be able to do [a] one bill and one install experience for the customer and not have two different people show up on two different days, to run it from one call center. This is an enormous opportunity for DirecTV that’s one of the things we could not have gotten with any other partner.”

DirecTV Mike White's belief that AT&T will follow through with a commitment it announced concurrently with its planned acquisition of DirecTV to expand its Internet footprint to reach an additional 15 million premises could prove illusory, dashing his hopes of expanded cross marketing opportunities. For more than a decade, AT&T has announced various infrastructure expansion initiatives including Project Pronto, Project Lightspeed and most recently, Project VIP that have turned out to be far more sizzle than steak.

Yet another AT&T premise infrastructure deployment by press release

Included in AT&T’s announcement today of its acquisition of DirectTV is yet another in a long legacy of Internet premise infrastructure deployments by press release over the years including Project Pronto, Project Lightspeed and Project VIP that were essentially PR gambits.

AT&T said cash generated by unspecified "merger synergies" (most likely lower costs for TV programming) will enable it to provide premise Internet service to 15 million customer premises in its service territory utilizing a combination of technologies including fiber to the premises and fixed wireless. The planned infrastructure deployments will be completed within four years of the closure of the DirecTV transaction, according to AT&T.

Most likely “Project DirecTV” or whatever AT&T calls it will be forgotten within a year or two and any reduced TV programming costs will instead be allocated to shareholder dividends and executive compensation.

Verizon abandons PSTN, commits to next generation IP-based services

Verizon has become the first big telco to fully commit to next generation Internet Protocol-based service delivered over fiber in which the Internet replaces the publicly switched telephone network (PSTN) designed for plain old telephone service (POTS) delivered over twisted pair copper wire.

“We don’t look any different than Google,” Verizon CEO Ivan Seidenberg told a Goldman Sachs investor conference last week. “We can begin to look at eliminating central offices, call centers and garages.” Seidenberg's remarks were reported in Saul Hansell's Bits column in The New York Times.

That means a much smaller, shrinking wireline footprint for Verizon as the company sells off its old copper plant and deploys its FiOS fiber to the premises plant. In effect, Verizon is starting almost from scratch to build a new wireline plant. And just as with the early copper cable plant, urban areas will see it many years before those living outside them will. That sets the stage for history to repeat the cycle of the early copper POTS deployments of a century ago in which less densely populated areas established telecom cooperatives in the meantime. Only this time the coops will be putting up fiber instead of metal.

In contrast to Verizon, the dominant American telco, AT&T, is trying to keep one foot in its PSTN past by attempting to pound the square peg of ever increasing IP-based bandwidth demand -- particularly for video -- into the round hole of copper POTS with its Project Lightspeed/U-Verse FTTN architecture. This gambit leaves AT&T far less strategic headroom and could ultimately lead to the company getting out of residential wireline altogether in the first part of 2010.

AT&T slows Project Lightspeed/U-Verse deployment

AT&T will decelerate build out of its hybrid fiber/copper Project Lightspeed infrastructure that delivers the telco's bundled U-Verse offering, TelephonyOnline reports today.

The publication cites comments by AT&T executives in a conference call Tuesday discussing the company's Q4 2008 earnings and citing Lightspeed/U-Verse as a drag on profits.

Under the scaled back deployment, AT&T has decided to delay its goal of passing 30 million homes from 2010 to 2011, according to TelephonyOnline, and concentrate on the former BellSouth territory in the southeastern U.S. AT&T acquired in late 2006.

Last month, AT&T also pushed back the deployment of VDSL copper pair bonding technology to extend the severely limited range and throughput of U-Verse. The new target date is sometime this year, the second delay after a planned late 2007 deployment was scrapped.

Telco market segmentation has shrunk U.S. residential wireline service area map, setting stage for locals to take over last mile

The widespread prevalence of broadband black holes throughout the United States — which can be found in urban, suburban, semi-rural and rural areas — has brought to light a major change in the landscape of residential telecommunications service. In modern times, residential telecommunications has meant near universal service to all but the most remote areas.

With the advent of high speed Internet, the residential wireline market is no longer a single one but has been segmented by the telcos who maintain monopolistic control over their markets. Over the past 2-3 years, the boundaries of broadband black holes have hardened and delineate the two segments.

The more accurate description is the residential market hasn’t been so much segmented but rather shrunk. One only need compare the telcos’ maps of where they provide Plain Old Telephone Service (POTS) and areas where advanced Internet protocol-based services are offered to graphically see the shrinkage.

This is a permanent alteration of America’s telecommunications map. Despite telcos’ promises to “turn up” advanced services to these areas over the past decade, it’s now apparent that these statements are a time buying PR ploy to keep regulators and politicians at bay. Now the residential wireline telecommunications map is posed to shrink even further with the limited rollout of fiber to the home service by Verizon and AT&T’s technologically constrained deployment of its fiber to the node Project Lightspeed as both companies migrate from DSL.

This redrawing of America’s telecommunications map has major implications for so-called “last mile” residential wireline. Where they don’t provide last mile IP-based access, the telcos will instead serve as first and middle mile telecom providers. Small local telcos and the residents themselves will become the default last mile providers. Where it makes business sense, smaller telcos that specialize in serving communities will deploy fiber to the node and fiber to the home. Where the numbers don’t pencil out for the small telcos, the residents will deploy their own fiber and fund it though voluntary cooperatives and special taxing districts.

Over the next several years, fiber will come to be viewed as a utility not unlike electric power and water and will appear on residential MLS real estate listings. Properties that lack fiber optic access will be at a distinct disadvantage to those that have fiber, creating a strong incentive for property owners to work together to bring fiber to their neighborhoods to better capitalize on recovering real estate values following the current market downturn.

AT&T will likely abandon residential wireline segment, U-Verse in early 2010

Sometime during the first two quarters of 2010, AT&T will probably become a pure play wireless company in the residential market, abandoning its Project Lightspeed/U-Verse deployment as part of a general retreat from the wireline-based residential/home office market segment.

The nation’s dominant telco — like other telcos — has been losing landlines to wireless phone service for several years now. When AT&T pulls the plug on U-Verse, which it began rolling out in selected markets in 2006 and which continues to fall behind deployment targets, it will likely cite unanticipated cost, technological and competitive market challenges.

The Achilles Heel of Project Lightspeed/U-Verse lies in the technological shortcomings of digital subscriber line (DSL). While DSL allows AT&T and other telcos to provide broadband over their existing copper cable plants, it’s hobbled by very limited range. When telcos first deployed ADSL around at the start of the decade, DSL’s limited range forced telcos including AT&T into a lose-lose proposition. Either they could spend significant sums of money installing remote DSLAM terminals to extend DSL’s notoriously feeble reach or leave money on the table in the form of lost opportunity costs, unable to serve subscriber premises not located close enough to their CO’s (central switching offices).

ADSL’s limited range also makes for unhappy customers who believe they are purchasing a particular speed tier only to find themselves involuntarily downgraded because the DSL signal isn’t sufficiently robust to support the level of service they ordered.

VDSL, the upgraded version of DSL that AT&T utilizes in its hybrid fiber/copper Project Lightspeed deployment, suffers from even greater range limitations. As such, it requires far more field equipment and fiber/copper interface cabinets (VRADs) than ADSL since VRADs can serve only premises located within 3,000 feet. While providing theoretical downside throughput of 25 Mbs, VDSL over copper also suffers from limited ability to scale up bandwidth to 100 Mbs and higher in order to remain competitive —at least when it comes to video — with MSOs (cable providers) and pure fiber triple players like Verizon and Surewest Communications.

Some market observers believe once copper has reached its throughput limit — many would maintain it already has — all AT&T has to do is change out the old copper for new fiber. That isn’t likely to happen. AT&T won’t bear that additional and substantial CAPEX burden and threaten its generous stock dividends when it is already struggling with the cost of the limited Lightspeed plant it has deployed to date and is reportedly cutting expenditures on it.

Additionally, given its existing alliance with Dish Network (to be replaced with DirecTV starting Jan. 31, 2009), it can still offer video without the associated CAPEX costs of Project Lightspeed and U-Verse just as it does with its marketing partnership with Wildblue to provide satellite “broadband” to the many residences located outside the restricted range of its DSL services.

What will happen to AT&T’s aging residential copper cable plant when it goes all wireless in this market segment? It will be put into runoff mode and minimally maintained — a plan that some would argue is already being implemented as resources have been redirected to Project Lightspeed. That will likely result in noisy and failed lines. But AT&T will probably simply pay any fines levied by regulators as a cost of unwinding its residential landline business with the expectation residential customers will migrate to its wireless service with the encouragement of limited time pricing incentives.

Comments by AT&T exec show U.S. cannot rely on big telcos to speed lagging broadband deployment

Recent comments in the New York Times by AT&T technology chief John Donovan underscore why the United States cannot rely on for profit, private sector providers to bring advanced Internet protocol-based telecommunications services to a nation that continues to lag years behind where it should be on broadband deployment. While America’s largest telecommunications company, Donovan’s comments show that AT&T is simply too risk averse to make the necessary investment to bring its rapidly aging last mile infrastructure up to date.

"The ideal way to deploy technology is on the last day as fast as possible, because it gets more capable and cheaper every day," Donovan told the newspaper. This has been AT&T’s failed broadband deployment strategy that has seen its seemingly bold broadband initiatives such as Project Pronto and Project Lightspeed collide with the company’s conservative culture aimed at maximizing depreciation and cash flow and paying large dividends to shareholders.

As your blogger has previously noted, that conservative capex strategy also likely reduces demand for advanced IP services over time since residential and home office based users who have repeatedly asked for such services conclude they will never be made available to them and give up and stop requesting them. The reduced customer demand in turn self justifies AT&T’s decision not to upgrade its plant and also limits competition since competitive local exchange carriers can’t sell their services if there are no circuits over which to deliver them. Moreover, cable companies won’t bother to extend their systems to such deprived areas either, leading to highly persistent broadband black holes.

The U.S. has already begun to move toward an alternative last mile broadband delivery model that’s playing out at the local level with support in some cases from state and federal funding. Under this emerging model, the last mile infrastructure — typically fiber — is privately owned and maintained by local property and business owners similar to privately owned roads. On a larger scale, entire communities opt to form nonprofits or cooperatives to deploy fiber systems. California Gov. Arnold Schwarzenegger recently signed legislation into law that would allow community services districts to construct their own infrastructure if for profit providers decline to do so.

Report: AT&T reduces investment in Project Lightspeed, concentrates spending on existing U-Verse deployments

While AT&T is making its triple play U-Verse its core wireline focus, at the same time it's throttling back investment in Project Lightspeed, the VDSL-based fiber to the node (FTTN) infrastruce that supports U-Verse.

Instead, spending is being redirected to selling and supporting customers in the limited areas where U-Verse has been deployed, writes Bob Wallace in xchange:

AT&T recently announced it is cutting capital spending by hundreds of millions, but didn’t disclose specifically how that will affect its FTTx plans. AT&T said roughly a year ago that all new builds would use an FTTN architecture, but with these cuts in capital spending more folks likely will have to get by with copper links. However, AT&T is hiring big for U-verse in areas including customer service and call centers, help desk staff and technicians to install the service. That plays toward customer retention and easy adds.

“We know the capex slowdown will impact how many homes AT&T can pass with U-verse throughout 2008 and early 2009,” said Jeff Heynen, directing analyst for IPTV and Next Gen BSS/OSS for Infonetics Research. “However, right now the priority is signing up subscribers in the areas where they do pass the majority of homes. Their subscriber ramp continues to get better, as it should.”

AT&T's failed broadband deployment strategy

AT&T has a bad habit of starting broadband technology deployments with bold declarations of new "projects," but half heartedly following through on them, leaving its infrastructure in disarray and like an unfinished information highway to nowhere.

Near the start of the current decade, AT&T (then SBC Communications) announced Project Pronto. The goal was to speed up the deployment of high speed Internet services — Digital Subscriber Line (DSL) over copper cable and twisted pair — to 80 percent of the phone company’s service area by 2002 and throughout its entire service area by 2006. Both deadlines were missed, with more than one in five residential customers unable to obtain any broadband services from the telco by the end of that year.

Now AT&T has decided to abandon that incomplete project in favor of another -- Project Lightspeed. It eschews the legacy DSL of the failed Project Pronto in favor of faster DSL -- VDSL -- running over a hybrid of fiber to the node (FTTN) and copper to the premises. The purpose of Project Lightspeed is to provide the necessary infrastructure to deliver AT&T's bundled Internet Protocol-based voice, data and video services known as U-Verse.

Like Project Pronto before it, Project Lightspeed/U-Verse appears to be faltering amid various technological and market challenges with the number of subscribers falling far below AT&T's goals and setting the stage for yet another incomplete initiative.

Complicating the picture is AT&T's decision to halt new deployments of its older legacy DSL technology in favor of the new VDSL Project Lightspeed platform, leaving large segments of customers who have been waiting for years for DSL hookups left in the lurch.

AT&T badly needs a management shakeup. It's time for an end to the fits and starts of ill-fated "projects" in favor of a new, long term comprehensive broadband strategy. It should commit itself to a deployment plan that covers all -- and not just selected portions -- of its 22-state service area and see it through to timely completion.

AT&T's customers deserve better. So do its shareholders, whom I believe would have the patience and perseverance AT&T's management has been lacking and would back a comprehensive broadband strategy if management clearly laid out the long term benefits.

The future of AT&T is at stake. It must decide if it wants to enter the digital, Internet telecommunications age or remain a mere "telephone company," content to rest on its laurels and passively depreciate its aging analog copper cable infrastructure while burdening itself with large dividend payments (recently five percent or $1.60 a share) that divert funds from needed investment in technology research and updated delivery infrastructure. If it chooses the latter course, then it shouldn't be surprised if bears and short sellers start stalking the company in the near future.