Questionable future for AT&T's residential market

The old AT&T as it existed before it was acquired by SBC one year ago abandoned the residential telephone market. It may not be long before the new AT&T does the same, starting in less populated portions of its 22-state service area including California.

Like other telcos, the company is hemorrhaging land lines as residential customers — particularly in more urban areas — give up their land lines and use cell phones as replacements. Last week after it closed its acquisition of BellSouth, AT&T signaled a possible shift away from its traditional residential land line business by indicating that wireless phone services along with revenue from wireless phone ads would be an important future revenue source. "We're about to become a company with wireless at its heart,'' AT&T Chairman and CEO Ed Whitacre told The Wall Street Journal after the deal was approved by the FCC. The purchase gives AT&T full control of its Cingular wireless unit.

Apparently hoping to stem some of its land line losses, AT&T is now offering what’s termed “naked DSL” service that allows residential customers to sign up for DSL broadband service as a single product without having to pair it with a traditional land line. However, it remains to be seen if AT&T can profitably provide the service, which it’s reportedly planning to offer for as low as $12 a month for the slowest speed plan.

For so-called “naked DSL,” it’s doubly doubtful AT&T can recover its costs outside of urban areas where the cost of providing service is greater. Nor is AT&T likely spend billions to upgrade its aging infrastructure outside urban areas to support its IPTV (Internet Protocol TV) service currently being rolled in a few metro areas. Taken as a whole, these circumstances point to a questionable future for AT&T’s residential segment, particularly in non-urban regions of its service area. Unless AT&T is able to substantially raise its broadband prices to bring them more in line with delivery costs, it’s quite plausible that AT&T will pull out of the residential market in these locations, deeming them underperforming assets.