AT&T gains 125K IP broadband subscriptions in Q3, but DSL losses remain a drag

ATT sign
AT&T says it's on schedule to reach 7 million locations with gigabit-capable fiber before the end of the year.

AT&T’s ongoing fiber to the premises (FTTP) is having somewhat of a ripple effect on its overall broadband base, enabling it to add several new IP-based broadband subscribers during the third quarter. However, the migration of legacy DSL customers to IP-based broadband and churn to cable continue to cut into its gains.

As penetration approaches 50% in mature markets, the fiber deployment drove 125,000 IP broadband gains throughout AT&T’s wireline regions.

John Stephens, CFO of AT&T, told investors during the company’s third-quarter earnings call that broadband continues to be a shining star in its wireline portfolio.

RELATED: From AT&T to Zayo: Tracking wireline telecom earnings in Q3 2017

AT&T CFO
John Stephens

“We also had another solid quarter of broadband growth,” Stephens said. “Total broadband subscribers grew for the fourth straight quarter.”

Broadband was once again a clear growth driver in the group as the company added 125,000 new IP broadband customers and a total of 29,000 subscribers.

Despite the gains in IP-based broadband, the service provider still lost 96,000 DSL customers, impacting its overall broadband revenues.

“High-speed internet revenue rose 1.3% year to year but was offset by lower legacy data revenue stemming from DSL disconnections,” said Steve Vachon, telecom analyst for Technology Business Research, in a research note. “High-speed internet remains one of AT&T’s strongest growing segments and the carrier will likely exceed its goal of expanding its FTTP footprint to 12.5 million locations by mid-2019.”

Enhancing the broadband toolkit

Looking forward, AT&T plans to enhance IP-based broadband service availability using an array of FTTP as well as its existing copper network via VDSL2 and Gfast.

One of AT&T’s near-term plans is to enable more consumer and business customers with fiber and copper-based broadband services.

“We plan to step up our high-speed internet deployment and reach more than 50 million customer locations with competitive broadband over the next few years,” Stephens said. “This includes our previously announced plans to reach 14 million customer locations with fiber-to-the-prem, our existing VDSL footprint, where we offer speeds of at least 50 megabits or higher, and the existing 8 million businesses who are either using or within 1,000 feet of existing fiber capabilities.”

With the launch of four new 1 Gbps broadband markets (Columbus, Georgia; Lafayette, Louisiana; Montgomery, Alabama; and Macon, Georgia), the company's AT&T Fiber service is now actively being marketed to 6 million locations.

AT&T says it's on schedule to reach 7 million locations with gigabit-capable fiber before the end of the year.

Stephens reemphasized that by the time AT&T completes its FTTP build, it might reach 14 million locations, surpassing the 12.5 million the telco agreed to build out as a condition of its DirecTV acquisition.

“We're going to do the 12.5 million because we committed to do that and we're on track and we're ahead of that schedule,” Stephens said. “Secondly, because of the way the 12.5 million is counted—and there are some limits on greenfield build, there are some limits on overbuild of existing capabilities and so on and so forth, I'd suggest when we're done with that we're going to be closer to 14 million.”

At the same time, the service provider has continued to expand its toolkit of broadband technologies. The service provider has continued to extend the capabilities of its VDSL2 network, offering 50 and 75 Mbps speed tiers in its wireline footprint.

“We have a VDSL footprint that serves at over 50 megs—or 50 megs, I should say, or better,” Stephens said. “Today, that's about 20 million. So those are the pieces. The additional pieces will be covered by 5G, and we're not going any higher than that.”

Enhancing VDSL markets is only one part of its next-gen copper strategy.

During the quarter, AT&T began rolling out Gfast-based services in 22 metro markets across the United States. The rollout illustrates the service provider’s desire to extend higher speed wireline broadband services in premises where it can’t make a business case for all fiber.

After conducting an earlier Gfast trial in Minneapolis, AT&T named eight initial cities that have properties equipped with the hybrid fiber/copper and coax technology.

“AT&T is also leveraging other technologies such as Gfast and fixed-wireless services where it is more cost efficient than fiber, particularly in rural and underserved markets and multi-dwelling units,” Vachon said.

Varied results

Within AT&T’s wireline segments, the service provider saw varied results from its consumer and business segments as legacy declines continued to offset next-gen service gains.

Here’s a breakdown of AT&T’s key metrics:

Entertainment Group: In the Entertainment Group, AT&T noted that growth in video, advertising and high-speed internet revenues were offset by legacy services. On the video side, nearly 300,000 Direc TV Now net adds helped offset traditional TV subscriber decline. As of the end of the quarter, AT&T had 25 million total TV subscribers, down 90,000. This was the result of AT&T tightening its credit requirements for video subscribers.

Business Services: AT&T Business Services revenues were $17.1 billion, down 0.7% from $17.8 billion in the same period a year ago. Like earlier quarters, legacy services pressure revenues as structural transition of business wireline continues.

New technologies like Ethernet and VPN drove gains in strategic business services. The service provider continued to make efforts to migrate more of its network functions to SDN. As of the end of the quarter, 45% of AT&T's network functions were virtualized.

Financials: AT&T reported $39.7 billion in third-quarter consolidated revenues, down from $40.9 billion in the year-ago quarter, primarily due to declines in legacy wireline services and consumer mobility. Taking out the impact of hurricanes and earthquakes in the third quarter, revenues would have been $39.8 billion.