AT&T plays cable catch-up game with 45 Mbps broadband market expansion

Sean Buckley, FierceTelecomAT&T's (NYSE: T) expansion of its 45 Mbps U-verse Power offering into 40 additional markets is a realization that it needs higher speeds to battle cable competitors that are today delivering 50, 100 Mbps and above. Offered across 15 states in the East, Midwest and South, the telco initially debuted the tier in two of its Western-based markets--California and Nevada--in July.

The 45 Mbps offering appears just to be the tip of the iceberg. At the time of its second quarter earnings call, AT&T indicated that as part of its Project VIP upgrade that it would offer a 75 and 100 Mbps tier later this year over its existing copper network. 

"Our network upgrades are on track and we expect to boost top U-verse speeds up to 45 megs per second in the next few months," said John Stephens, CFO of AT&T. "We are moving towards speeds of 75 megs and 100 megs in the near future."

Overall, the U-verse Power tier is competitively priced. Eligible customers can get the higher 45 Mbps service for $49.95 if they purchase the service as part of a bundle of U-verse TV and voice services and sign a two-year contract. 

Upgrading its network to support higher speeds comes at a pivotal time for AT&T. While adding over 641,000 broadband U-verse customers, it lost 61,000 broadband customers in Q2 2013.

Unlike its RBOC brother Verizon (NYSE: VZ), which is using FTTP (fiber to the premises) architecture as its next-gen broadband platform, AT&T has taken a safer near-term hybrid copper/fiber FTTN (fiber to the node) approach using VDSL2 to connect homes.

Complementing VDSL2, there is a growing mix of emerging technologies including vectoring, Dynamic Spectrum Management, and Phantom Mode DSL that can increase the rate and reach of an existing copper pair by reducing crosstalk and noise. Looking further out, the emerging G.Fast standard will have the ability to deliver up to 1 Gbps over copper at very short distances from a distribution point to a home.

Still, there are various risks with copper-based solutions. Using a FTTN approach is certainly more economical in the near-term, but the limitations of DSL mean that the end-customer has to meet three qualifying elements to get service: have good quality copper at their premises; have additional copper pairs to bond; and be located less than 2,000 feet from the nearest Video Remote Access Device (VRAD).

Copper may be its main focus, but AT&T is not completely against using FTTP.

It has done some FTTP rollouts, but they have been mainly in Greenfield housing developments, including Dewhirst Properties in Knoxville, Tenn., where it will offer only 24 Mbps speed tiers. Following Google Fiber's (Nasdaq: GOOG) announcement to that Austin was its next target, AT&T revealed plans to roll out a 1 Gbps-capable FTTP network in the city. However, it did not provide details about when it would actually begin offering service or when the buildout would be complete.

Besides the limitations of copper, AT&T still trails what the speeds that cable already offers.

Leveraging their existing HFC plant and their DOCSIS 3.0 upgrades, all of the top MSOs, including Comcast (Nasdaq: CMCSA) and Time Warner Cable (NYSE: TWC) already offer 50, 75 and 100 Mbps tiers. In addition, Comcast launched 305 Mbps, Ethernet-based offering via its Xfinity service last September, and Charter was reportedly working on a 300 Mbps speed tier.

As they continue to lose traditional video subscribers, broadband has become a savior in cable's earnings results. Comcast, for one, reported that it added 187,000 net high-speed Internet subscriber additions during the quarter.

Whether AT&T's new higher speed offerings will be enough to pose a serious threat to cable is still in question, but it's clear that it needs to actively try to match what the MSOs can offer.--Sean