AT&T has an opportunity to revamp business services revenues by implementing a host of cost-cutting measures amid the ongoing migration to a virtualized services delivery environment.
The service provider said it will continue to focus on cost-management initiatives and process automation service delivery efficiencies as well as SDN and virtualization.
Barclays said in a research report that AT&T’s moves to reduce costs in the business operations are bearing fruit.
“Despite the segment's subdued top line progression, management's ability to drive out costs has enabled segment margin stability,” Barclays said in a research note. “Further options for cost reductions include optimizing costs in legacy voice / data, driving higher utilization of its fiber infrastructure, and ramping software centric applications.”
Out of the largest telcos, AT&T has been the most aggressive on the virtualization side. AT&T set a goal to equip 55% of its network with software by the end of 2017. In 2016, the service provider set a goal to convert 30% of its network to SDN, but AT&T surpassed that goal and met 34% of its network and is on its way to 75% by 2020.
By implementing process automation and service efficiencies, AT&T can continue to roll out next-gen services such as on-demand Ethernet and SD-WAN.
While AT&T’s plans to improve business service revenues are certainly sound, the telco still faces near-term challenges to make that a reality.
During the second quarter, AT&T’s business wireline segment saw pressure from legacy services and equipment sales. Business Solutions segment revenues were $17.1 billion, down 2.7% year-over-year due to continued declines in legacy services and fewer wireless equipment upgrades, partially offset by growth in strategic business.
Being a traditional telco, declines in legacy voice and data will “remain a standing headwind AT&T's Wireline Business Solutions,” Barclays said.
“While the revenue contribution from legacy services continues to shrink (~48% of 2Q17's Wireline Business Solutions revenues vs. 53% a year ago), its low-to-mid double-digit year-over-year declines remain a drag on the overall business' growth profile,” Barclays said. “Thus, the prospects for a return to overall segment growth seem low for the near term.”
Ramping Ethernet, virtual services
Despite the near-term revenue pull from legacy declines, the company sees several attractive opportunities within wireline strategic services.
AT&T continues to garner customers for Ethernet, cloud and security services. The service provider has maintained the top spot on Vertical Systems Group’s mid-year domestic Ethernet Leaderboard.
“In the near term, these include healthy demand for Ethernet, cloud / security services,” Barclays said. “Over the mid to longer term, the carrier believes the proliferation of more SDN-based services provide it with a means to meet enterprise needs for more flexible bandwidth management and opportunities to upsell additional applications.”
By implementing open-source technologies and white box hardware, AT&T will gain cost savings by enabling the carrier to become less dependent on more costly, proprietary infrastructure. On the virtual services end, AT&T has been enhancing services such as NetBond, which allows customers to their service on AT&T’s private network. Businesses will get a more predictable network experience that is free from the latency issues of the public internet.
AT&T is also offering SD-WAN with a focus on small businesses.
While AT&T’s entry into SD-WAN provides more validation for the segment, the telco is going to face a group of not only fellow incumbent providers such as Verizon and CenturyLink that previously released an SD-WAN service, but also Comcast Business, which is just launched its SD-WAN service.