The Mistakes of AT&T and Solutions

AT&T in their residential strategy has made one mistake after another, & this is surely the biggest & most foolhardy of them.

First, AT&T embraced an FTTC strategy that relied on copper pairs to deliver last-mile broadband access knowing full-well that copper with VDSL technology tapped out at 25-35 Mb/s, far below today’s FTTH or DOCSIS cable technology, and utterly incapable of delivering high-speed data & multi-TV HDTV services. AT&T could only compete under these circumstances by continuously updating its poor copper network to keep up with competitors. Verizon bit the bullet & made the right decision to deliver FTTH from the start.

Now, recognizing their foolish strategy, AT&T wishes to make up for it by buying a 1-service & expensive to operate parallel network just to deliver video. Imagine this: AT&T operates one network to deliver voice (mobile, and perhaps copper, which is imploding), one network to deliver video (satellite DirectTV), and one network to deliver high-speed data (DSL/VDSL, neither of which can currently compete for speed).

Three networks to deliver the same services their competitors (Cable, Verizon, & Google) deliver on one. Who will win? Not AT&T–their cost structure is completely out of line with competitive reality. Imagine what AT&T could do investing $50 billion in their own network rather than buying an outdated satellite provider to deliver just one service. Why stockholders continue to put up with this nonsense is beyond the pale.

One of the great weaknesses of satellite television (a business in which I have been engaged for a number of years in various ways) is the inability to offer a really good broadband Internet connection. Thanks to the launch of a new satellite last year, most of the nation can get a 10 meg connection. Problem is, the economics of the satellite mean that the amount of use per customer, per month is limited. After you’ve had your lunch, no dinner for you. There is an enormous amount of bandwidth on the satellite (ViaSat 1), but it is still finite.

If AT&T would acquire DirecTV’s satellite customers, too. Thus, it could offer a bundled deal of television, Internet and phone service (even cell service) in some cities. In the future, it could also choose to convert some of those customers to cable type transmission of video or simply leave them on satellite. AT&T would also get the profits from operating DirecTV, of course. Buying bundled services from one supplier has proved to be appealing to many. Because each customer is valuable over time, sign up deals, bonus payments, can be offered to jump start contracts. As for the anti-competitive aspects, if the Comcast deal to buy Time/Warner cable goes through, how could the govt. oppose this deal?

DISH Network, also very profitable, becomes both a target for take over and, perhaps, a company in search of a merger partner. Having DirecTV be part of AT&T would likely disturb DISH executives considerably.

Leave a Reply

Your email address will not be published. Required fields are marked *