AT&T's Stephens: Fiber rollout is driving uptick in SMB managed services sales

AT&T (NYSE: T) may be nearing completion of a fiber-to-the-building (FTTB) program as part of its multibillion-dollar Project VIP initiative, but the service provider is seeing the influence extend into smaller businesses.

Having built out fiber to over 965,000 business locations, the service provider is on track to meet its 1 million connections.

Speaking to investors during the Morgan Stanley Annual Technology, Media & Entertainment Conference, John Stephens, CFO of AT&T, said that fiber is helping drive up managed services sales to small to medium sized businesses (SMBs).

"We spent the last three years getting fiber out extensively in our network, our backbone and out to our business customer locations," Stephens said. "We have seen a change in the trends of our small business revenues and it's directly tied to the fiber we put in place, but also the ability to take our strategic services and push them down market because of the fiber."

AT&T saw the fruits of the FTTB build pay off in the third quarter, reporting that business revenues 1.2 percent year over year to $17.7 billion. Once again, strategic business services rose, which include VPN, Ethernet, cloud, hosting, IP conferencing, VoIP, MIS over Ethernet, U-verse and security services, climbing 12.6 percent to $2.8 billion. Total wireline data rose for the fourth consecutive quarter and now makes up 59 percent of total business wireline revenues.

Among the many emerging managed services it is providing to businesses are its growing suite of Ethernet and managed security. The service provider's Switched Ethernet Service via Network on Demand -- which is available in more than 170 cities -- is now serving more than 275 customers to date.

A number of AT&T's small business customers are taking advantage of these managed services. In Fort Worth, Texas, a school district is using AT&T's network provisioning portal to reduce bandwidth to their schools when school is not in session for the summer and then increasing the bandwidth when school starts again. 

At the same time, AT&T is seeing opportunities for the consumer segment where it extending its 1 Gbps FTTH service to more homes as well as enhancing the speeds and bundled packages within its fiber-to-the-node (FTTN) U-verse footprint.

Under its commitment to gain approval for its DirecTV deal, AT&T committed to bring FTTH service to an additional 12.5 million homes. The service provider has continued to announce new FTTH markets, including most recently Jacksonville, Fla., and 22 other markets.

Stephens said that it will attack the FTTH build on three fronts: new builds, Greenfield builds and overlaying FTTH on its existing FTTN network. Upon completion it will have a total of about 14 million homes connected to fiber.

"We're going to do that within our 15 percent of capital intensity for our budget target and we feel very good about that," Stephens said. "We're going to do that from new builds, Greenfield builds, and we'll be able to do that by overbuilding on the existing fiber-to-the-node builds."

While he did not reveal specific FTTH subscriber numbers, Stephens said customer reception has been positive.

"Our experience so far in the million fiber homes we have today we're able to take our share, give a great customer service and it's performed quite well," Stephens said. "When you can combine that with the other assets we have -- the wireless services, satellite TV, the retail distribution capabilities as far as customer service -- we think we have a real opportunity and believe we can compete."

Outside of the fiber territories, AT&T is continuing to enhance its FTTN-based U-verse broadband service, adding new speeds including a 45 Mbps and now 75 Mbps tier.

In the copper-based territories the carrier has also been aggressively bundling wireline broadband with TV and wireless services. Having DirecTV assets in hand, AT&T can provide a broadband and video bundle regardless of where a customer is located in its territory.

"I will tell you we have also been able to compete with our U-verse product, which often does not require fiber," Stephens said. "We have had about 30 million of our customer locations covered with U-verse and they're getting speeds of 45 and 75 Mbps or greater."

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