Monday, February 18, 2008

Lack of patient capital condemns AT&T to also ran status in coverged IP services

Taken in combination with a recent financial analysis of AT&T, a survey of telecom execs last year by IBM's Institute for Business Value suggests that while telcos look to the convergence of Internet protocol-based voice, data and video services to grow their companies, AT&T isn't likely to get a major share of the action.

The reason: a lack of "patient capital" that the company needs to upgrade its network -- particularly over the final segments before it reaches customer premises.

With digital convergence blurring industry boundaries, telecom providers now believe they can expand their addressable market to include areas of media and advertising that were once beyond their reach. Many telecom operators are investing in digital content with the expectation of offsetting declines in voice revenues.

The most promising areas of advanced content services are television and video. However, delivering all but the most basic digital content services over networks that were originally designed for voice communications and Web browsing is challenging, and telecom operators are having to upgrade their networks to compete. The returns on these network upgrade investments remain uncertain and are likely to be positive only in the long term.

"Positive only in the long term" means patient investment capital. However, a recent analysis by DSL Prime's Dave Burstein found an absence of such funding at AT&T. Rather than increasing spending on its infrastructure, Burstein found the company instead slashed capital expenditures by 50 percent since 2002, which explains AT&T's abandonment of its planned system wide DSL deployment dubbed "Project Pronto."

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