AT&T's Donovan: Software, IP migration will increase business service delivery timelines

AT&T (NYSE: T) continues to see its bet on its ongoing network migration from TDM to IP bear fruit, particularly on the enterprise market, according to a top company executive.

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Speaking at the Citi 2015 Internet, Media & Telecommunications Conference, John Donovan, senior EVP, Technology and Network Operations for AT&T, said that the company is seeing a greater amount of enterprise customers adopt fiber and IP-based services.

However, AT&T, like its counterpart Verizon, still has to deal with the near-term reality of having to maintain a legacy TDM and IP-based network.

"We're starting to see very, very heavy migrations to IP underneath our numbers and we have been working hard to manage that hump of costs that comes when you have mixed networks," Donovan said. "We're getting to the point where we feel very comfortable that we'll continue to manage it smoothly from a financial perspective and I don't expect any sudden surprises because we had a bunch of that migration work undergoing for the last 24 months."

Donovan added that while adoption has picked up over the last 12 months, the process has been ongoing for nearly seven years.

"Since 2008, I think a lot of enterprise CIOs have decided that the risk/reward ratio is tipping toward IP so we have seen an acceleration of that," he said. "That is good news for us because the cloud strategy requires fat pipes so we're starting to see a lot of customers speed up and I think we have done a good job with our cloud strategy of maintaining the value in a managed network and not selling transport only."

One of the near-term challenges that AT&T and its other Tier 1 telco brethren continue to face is how declines in legacy TDM-based service revenues continue to be a drag on their overall business revenue mix.

While AT&T won't release its fourth-quarter results until Jan. 27, such a trend was on display in the third quarter of 2014. During that period, AT&T reported that strategic business services such as cloud, Ethernet and VPN rose 14.3 percent to $2.5 billion. At the same time, overall business revenues declined 2 percent year-over-year to $8.7 billion but remained stable sequentially.

AT&T's IP transition and its ongoing movement to implement software into its network will also enable AT&T to more effectively manage its own internal costs. Ultimately, the service provider's goal is to virtualize and control over 75 percent of its network using this new architecture by 2020.

Already, the service provider is seeing the benefits of these moves.

The service provider cited how it reduced one of the physical aggregation points in its network by trialing a router to aggregate both its wireless network traffic in the metro area while delivering Ethernet services to business users.

"We trialed a router we bought from one of the big router companies whose sole purpose in life was to aggregate wireless traffic in the metro area," Donovan said. "We dropped a piece of software on that and said now we want you to do transport Ethernet services for business and the software allowed it to do that second function so the number of access points to do Ethernet service can grow from 50-500."

For customers, the benefit of a dual-purpose router is that they can go into a web-based portal and increase speeds or order other services for their locations.

"From a customer standpoint... the customer can increase the speed of their network by themselves on the web, look at the service, and I don't need to be involved," Donovan. "I don't have sales friction, I don't have order friction, and I don't have mistakes in the back office so that's why IP is critical."  

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