AT&T Plans $14 Billion Wireline/Wireless Broadband Expansion

The wireless expansion would bring 4G LTE service into 99 percent of AT&T’s wireline service area by the end of 2014, serving a potential 300 million customers, CEO Randall Stephenson told investors. The wireline expansion would make AT&T’s U-verse and U-verse IPDSLAM services available in 75 percent of the carrier’s customer locations -- 57 million, Stephenson said. AT&T’s decision to “serve the more rural parts of the U.S. and provide coverage and service to the ‘underserved and unserved areas’ with faster technology is a great commitment to being able to expand their network and provide services that are desired in these places,” said Jason Nicolay, vice president at broker Media Venture Partners. The carrier’s expansion plans will also improve wireless infrastructure, helping to create and add value to it over the long run, he said.

The expansion plans will lead to more robust rural broadband in the long run, Nicolay said. “I think it does definitely offer them the opportunity to provide robust services that are not extremely accessible outside of the township,” he said. “They might have high-speed fiber or DSL line, but once you get a mile outside of the community, it’s pretty antiquated equipment and technology for people to use. This commitment is definitely a strong move to well serve potential customers in those areas.” AT&T’s holdings in the 700 MHz band will be particularly useful as they expand their network, since that spectrum is “really good for covering rural parts of the U.S.,” Nicolay said.

Project Velocity IP would also involve a $6 billion investment in the carrier’s fiber deployments that would make fiber available in 50 percent of office buildings in its wireline service area by the end of 2015, bringing the service to an additional 1 million of its business customers, Stephenson said. Additionally, the carrier noted it wants to move from legacy TDM phone service to wireless and VoIP. Paul Gallant, an analyst with Guggenheim Partners, thought AT&T’s plan to transition away from legacy phone service would bring up “some tricky questions.” Still, he said he thinks the announcement is “pretty significant and should create a positive backdrop for AT&T and others to have these discussions with federal and state regulators."

The main regulatory hurdle AT&T will need to clear related to the plan will revolve around its spectrum requests pending before the FCC, Nicolay said. “Obviously the FCC has noted that they are reviewing spectrum caps again, and although they continue to approve some transactions, obviously they haven’t approved a handful of AT&T’s spectrum requests. That’s probably their biggest hurdle at this point, getting access to that spectrum in order to complete this buildout in the timeline they've set.” AT&T credited the 40 spectrum deals it has made this year with making the expansion plan possible. John Stankey, AT&T chief strategy officer, told investors that some of the carrier’s requests remain under review but he believes the FCC will soon approve them. AT&T is confident of its spectrum position for the next two years, but the FCC must act to free up additional spectrum for it to continue to grow, he said. “Even under ideal circumstances, getting new spectrum on the market in the next five to seven years is aggressive,” Stankey said.

AT&T’s plans are “proof positive” that there is a healthy environment for innovation and investment in the U.S. communications sector, FCC Chairman Julius Genachowski said in a statement (http://xrl.us/bnyimd). The plans will also aid the U.S. in achieving the National Broadband Plan’s goals, he said. “AT&T’s commitment to further expand its broadband footprint is a promising step that, together with other investments of private capital, will help achieve this goal,” he said. “We look forward to reviewing further details as they become available and continuing to work to expand choices for consumers, increase competition, and increase access to high-speed broadband."

'Regulatory Experiment'

On the same day as its announcement, AT&T officially asked the commission to launch a proceeding concerning the transition from TDM to Internet Protocol networks (http://xrl.us/bnyhdx). AT&T also asked for “trial runs” of the transition to next-generation services in “select wire centers,” to help the commission “understand the technological and policy dimensions of the TDM-to-IP transition” and identify the regulatory reforms needed to “promote consumer interests and preserve private incentives to upgrade America’s broadband infrastructure.” The “regulatory experiment” would see the elimination of “outdated ’telephone company’ regulations” such as the need to seek Section 214 approval to replace TDM services with alternatives, and precluding carriers and carrier customers from demanding service or interconnection in TDM format, AT&T said.

AT&T’s petition suggests “issues to consider in our ongoing work to modernize our rules for the evolving communications market,” Genachowski said. “As we review AT&T’s filing, we will focus on the principles that have guided our actions since I became Chairman: driving the virtuous cycle of private investment and innovation in the broadband ecosystem, promoting competition, and protecting consumers."

"AT&T is not asking for any relief in this filing,” said Bob Quinn, AT&T senior vice president-federal regulatory, in a blog post Wednesday (http://xrl.us/bnyhop). “We are asking for a proceeding and a beta trial to address all of the policy, technology, technical and operational questions that must be addressed to complete the transition away from the legacy TDM infrastructure that has served us so well for the past 50 years.”

The telco pointed to the National Broadband Plan recommendation that the commission start a proceeding to consider “the necessary elements of this transition in parallel with efforts to accelerate broadband deployment and adoption.” Last year’s USF/intercarrier compensation order took “critical steps” toward reform, and the FCC should open a proceeding to facilitate the transition toward an all-IP network capable of supporting broadband Internet, “higher-layer” VoIP and other advanced telecom services for all Americans, AT&T said.

In AT&T’s proposed “regulatory experiment,” the commission would invite ILECs to propose individual wire centers for the beta test, and a detailed plan identifying steps those carriers would take in each wire center to move from TDM to IP-based facilities and services. The plan would identify the modifications each carrier would make to its network to effect the transition, as well as the services it would offer in place of legacy wireline services, and a timeline for those changes. “AT&T recognizes that the Commission may wish to proceed incrementally before eliminating, on a nationwide basis, all of the counterproductive regulatory burdens” facing ILECs, such as Section 214 discontinuance requirements, notice-of-network-change rules, “equal access” obligations, dialing parity and legacy copper loop requirements, it said. “This regulatory experiment will show that conventional public-utility style regulation is no longer necessary or appropriate in the emerging all-IP ecosystem."

Reducing regulatory burdens will also influence telecom providers’ future investment decisions, AT&T said. “If the Commission hopes to maximize private sector investment to achieve its goal of nationwide broadband, and preventing stranded investment in obsolete facilities and services, it should take further action now to ‘facilitate the transition to an ‘all-IP network,'” AT&T said. AT&T noted that carriers are “stepping up to do their part,” explaining that “just today” AT&T had announced a $6 billion investment plan to expand and upgrade its wireline network to bring “robust IP broadband services to millions of additional locations in its legacy footprint,” and a plan to invest $8 billion in its wireless network to deploy LTE services to 300 million people by the end of 2014. “Based on the actions the FCC already has taken, AT&T makes this announcement with full confidence that the Commission will continue to implement the National Broadband Plan’s vision of removing regulatory impediments to efficient, all-IP networks, including obligations that could require carriers to maintain legacy facilities and services even after they have deployed new, IP-based alternatives,” AT&T said.

"The broadband networks of the future depend on investment in the present,” and hopefully AT&T’s investment in all-IP networks will be an indicator of growing investment in the marketplace, said Seth Cooper of the Free State Foundation (http://xrl.us/bnyhun). “Such investment depends on pro-investment public policies. That means relying on the forces of free market competition while keeping regulation to a minimum, offering competing providers regulatory certainty that encourages them make pro-investment decisions.” Anna-Maria Kovacs, visiting senior policy scholar at Georgetown University’s Center for Business and Public Policy, said AT&T is taking a “significant risk” in making its investment to upgrade rural areas to U-verse and LTE, and it won’t be able to keep investing long-term under the current rules. “It is not in any regulator’s interest to force AT&T -- or others -- to operate at less than maximum efficiency, at the state-of-the-art."

AT&T’s proposal was not without its critics. The Broadband Coalition, a group of competitive carriers and purchasers of special access services, said AT&T’s declaration that it needs regulatory intervention in order to invest in IP technology “is a re-run of a tired ploy to leverage the company’s dominance. AT&T only invests in order to respond to competition, and competition is made possible by the very pro-competitive policies that AT&T seeks to eliminate.” Coalition spokesman and former Rep. Chip Pickering said AT&T was trying to use its “belated roll out of IP technology as an excuse to rewrite the telecom rules to its advantage. ... AT&T’s claim that IP will somehow alter the laws of economics and lessen its dominance is patently false.” Economist Joe Gillan of Gillan Associates said it was “reasonable” for the commission to open a technical proceeding as part of an order finding that IP-to-IP interconnection is subject to the Telecom Act of 1996. “We can even ‘beta-test’ an Interconnection Agreement amendment to make sure that it effectively checks AT&T’s market power,” said Gillan, who has done work for CLECs and other competitive providers.