AT&T CEO Randall Stephenson said he is "cautiously optimistic" about using new broadband technology to boost the value of rural phone lines, rather than selling them off, the Washington Post reported.
Speaking at an investment conference hosted by Sanford C. Bernstein on Friday, June 1, Stephenson said his company is looking to use a better version of digital subscriber line technology in order to boost Internet access in rural areas. AT&T had considered the lines as an asset it could sell off, but Stephenson said a deal would face regulatory hassle and require multiple state approvals.
'Underperforming Assets'
The company had labeled its rural lines and its Yellow Pages directory as "underperforming assets" that were slowing the growth of the company, but this move could turn things around. Back in April, AT&T agreed to sell a majority stake of its Yellow Pages business to Cerberus Capital Management LP in a $950 million deal, and rural lines had been next in line.
According to Roger Entner, an analyst at Recon Analytics LLC cited by the Washington Post, Stephenson may have tried to make a deal, forcing the company to earn more revenue out of the assets. The carrier, however, faces increasingly tougher competition from cable companies offering broadband in a wider range of rural areas. "If he can't sell them, then he has to make the best out of them," said Entner, as cited by the Washington Post. "His lines without high-speed Internet are sitting ducks waiting to be picked off by cable companies."
AT&T to Decide by Second Half of 2012
Stephenson has discussed the previous rural-broadband plan on an investor conference call hosted by JP Morgan Chase & Co. last week, and reportedly expects to make a decision on whether to improve the assets or sell them off by the second half of this year. "I do feel more optimistic about the opportunity to get more broadband into rural areas," said the CEO at the conference call last week.
AT&T's network has roughly 50 million homes in range, and about 30 million of them are within reach of its U-verse fiber-optic system. AT&T could sell those people a bundle of services, including phone plans, broadband Internet access, and television. The challenge, however, is in offering services outside that rage. Roughly 15 million of the homes outside the range of U-verse can be served by DSL, but that may not be as fast as cable broadband.
IP DSLAM Could be the Solution
AT&T has been using a network device called Internet protocol digital subscriber line access multiplexer (IP DSLAM) to speed up those lines. The device serves as a high-speed gateway for video downloads or viewing Web content, and according to Stephenson the cost of deploying such devices has been better than expected. "Rural lines are lower-growth assets compared with AT&T's overall average, but they do generate cash," said Barclay Capital analyst James Ratcliffe, as cited by the Washington Post.
Boosting broadband coverage could generate more revenue and help fight competition from cable companies, but there would still be 5 million homes in AT&T's coverage area that are located too far away from a network hub to be able to receive any kind of broadband, added Ratcliffe.
AT&T had intended to use its acquisition of T-Mobile USA Inc. to reach the rural market with mobile Internet service, but that deal failed. On a conference call back in January, Stephenson said AT&T o longer had a solution to overcome its rural broadband challenges. The IP DSLAM initiative, however, has changed the company's view, according to Stephenson.
"We are giving this a hard look," Stephenson said last week on the JPMorgan conference call. IP DSLAMs "bring broadband capability in a most cost-effective manner, with a better revenue profile than perhaps we would have thought two years ago."
