AT&T finds virtual, mobile business services growth, but poor economy and legacy losses pose challenges

Analysts are taking notice of AT&T’s virtualization efforts in the business segment.

AT&T is seeing the fruits of its network virtualization conversion plan play out in the business service segment, but a challenging economy and declines in its legacy services business are putting continual pressure on the telco’s overall business revenues.

The service provider already surpassed its virtualization goal for 2016, bringing it closer to its goal to virtualize 75% of its network. In the business market, AT&T’s virtualization efforts have resulted in new products like NetBond, Network on Demand, and Network Functions on Demand.

NetBond allows businesses to connect, or “bond,” an AT&T VPN connection to any preferred cloud provider.

John Stephens, CFO of AT&T, told investors during its fourth-quarter call that it has continued to ramp up its cloud partners for Netbond and that more customers are adopting its virtual business services.

“We’re seeing continued progress on our network virtualization and our software defined network enabled services,” Stephens said. “Our virtualization plan is ahead of schedule with 34% of our network virtualized at the end of the year and net NetBond continues to be well-received with 19 of the leading cloud service providers now making it available.”

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Analysts are taking notice of AT&T’s virtualization efforts in the business segment.

Steve Vachon, Telecom Research Analyst for TBR, said in a research note that AT&T is making the right moves to create new revenue streams as its legacy business services continue to decline.

“AT&T is retiring low-demand legacy assets to increase its focus on next-generation technologies that will improve Business Solutions revenue and foster innovation across the global telecom market,” said. “AT&T is focused on bringing agility and intelligence to its enterprise customers, bringing its NFV/SDN, IoT and analytics offerings to bear to help its customers transform into digitally optimized businesses.”

Legacy losses, slow economy remains a drag

Despite the promise that AT&T’s next-gen virtual services will bring, AT&T continues to wade through TDM to IP growing pains, a trend that continued into the fourth-quarter.

In AT&T’s business wireline segment, fourth-quarter declines in legacy products and business investment were partially offset by continued growth in strategic business services.

Strategic services revenues from services like Ethernet and cloud were up 8.3% year-over-year and make up 38% of business wireline revenues. Total business wireline revenues were $7.7 billion, down 4.6% year-over-year.

“The drop off in business wireline spending was felt in all our business segments,” Stephens said. “Enterprise is maintaining a leading share position in the tough environment but comparisons were impacted by the second quarter 2016 sale of some of our hosting operations.”

Stephens added that “small business is seeing the impact of competition” from cable operators and CLECs.

Business mobility rising fast

While AT&T continues to see growth with its consumer wireless base, wireless is also becoming a bigger factor in the telco’s business unit.

During the quarter, wireless business wireless revenues were up 1.9% year-over-year to $10.3 billion driven by wireless service revenue growth, which more than offset lower equipment revenues due to lower sales and upgrades.

AT&T noted that growth in mobility and strategic business services helped offset declines in legacy wireline services, the lack of business investment and the second-quarter 2016 sale of certain hosting operations.

“Our business segment continues to perform well even as it feels the impact of a lagging economy and the lack of business fixed investment. Wireless growth was solid but not enough to overcome the pressures of legacy services decline.”

Randall Stephenson, CEO and chairman of AT&T, said that the telco will continue to look for opportunities to provide integrated business wireless services.

“The lion share of our wireless business is the business side, and we are continuing to grow there very nicely, our wireless business to business customers,” Stephenson said. “And that again, like the consumer side, but we’re much further down the path on integrated solutions in wireless.”

Stephenson added that “where we are having our greatest success is getting our customers from the mobile device on a secured network VPN connection into the cloud using NetBond and back out without ever touching to public internet.”