U-Verse won't bail AT&T out of its residential wireline woes

Here's a notable report by Todd Spangler of Multichannel News on AT&T's revenues from its hybrid fiber/copper VDSL triple play U-Verse service that suggests while posting increases in customers and revenue, they may be too little and too late to offset a dramatic decline in AT&T's residential wireline market segment. In a Dec. 21, 2009 filing with the U.S. Federal Communications Commission, AT&T in unusually blunt language called the downward trend a "death spiral."

Spangler reports that while AT&T's U-verse revenue nearly tripled over 2009 (despite a sharp economic downturn) and is approaching an annualized rate of $3 billion, it nevertheless represents less than five percent of total wireline segment revenue. Spangler notes even that strong growth isn't sufficient to offset flagging wireline segment revenues, which fell six percent in 2009 to $65.7 billion.

Meanwhile, AT&T disclosed this week it would spend $2 billion on its wireless infrastructure -- money that won't be going into wireline CAPEX to build out the U-Verse footprint. Doing that is a costly proposition given U-Verse involves expensive field distribution equipment that can deliver service only 3,000 feet over existing copper cable plant -- plant that often requires even more money to bring it up to technical standards to reliably carry VDSL signals. That's not an issue in new neighborhoods, where U-Verse is delivered over fiber to the premises. But few such locales are being developed with new home construction at its lowest level in decades.

In sum, U-Verse isn't likely going to bail AT&T out of its troubles in residential wireline and may ultimately lead to the big telco pulling out of the market segment to concentrate on wireless in the retail market as I predicted in September 2008.