AT&T's Stephens says 'holistic' fiber buildout will address business, wireless backhaul needs

AT&T's (NYSE: T) ongoing FTTH rollout may be designed to provide consumers and businesses with higher speeds, but the service provider is seeing additional benefits from build.

John Stephens, AT&T

Stephens (Source: AT&T)

Speaking to investors during the Deutsche Bank 2016 Media, Internet & Telecom Conference, John Stephens, CFO of AT&T, said that the carrier can use the fiber to address businesses and even wireless backhaul.

"It does give great broadband and great speeds and great opportunity to deliver video over the top, but quite frankly when you build these out you have this opportunity then to connect businesses as you build this platform out," Stephens said. "As you build these neighborhoods out, you go by the small businesses you go by the large businesses and take advantage of this fiber to provide backhaul for your cell sites and DAS systems."

Stephens said that although building out fiber to homes requires a lot of upfront capital, the ability to multitask those facilities will help it gain a better return on its investment.

"When we build these things, we look at it on a holistic basis," Stephens said. "Yes, on the front end it may take a little more investment, but when you think about the efficiency that you can get multiple uses out of the fiber backbone or these connecting points it's really much more efficient and provides more value."

To date, AT&T has passed 1.6 million homes in 20 markets with plans to bring service to 56 markets.

On top of the initial rollout, AT&T will build out to an additional 12.5 million locations as part of its agreement with FCC to get its DirecTV deal approved.

With mobility becoming a key priority for business owners, AT&T will evaluate whether it should install a distributed antenna system (DAS) at a building site along with fiber and Ethernet equipment.

Such a proposition makes sense for AT&T.

ABI Research forecasts that in-building mobile data traffic will grow by over 600 percent by 2020. Interestingly, the research firm said that by 2018, Wi-Fi traffic is set to exceed all 2G, 3G and 4G cellular traffic combined.

"When we take fiber to business customer locations, we always evaluate whether we should run a DAS through the building to make sure our wireless business gets coverage," Stephens said.

Extending fiber into more businesses also makes sense for AT&T to continue beyond the 1 million business locations it now reaches via the fiber-to-the-building (FTTB) program portion of its Project VIP initiative.

AT&T reported that strategic business services like cloud and Ethernet grew 15 percent in 2015.

"People want these next generation services and we have spent the last four to five years modernizing out networks and product offerings with NetBond and network on demand, which is paying off," Stephens said. "About 60 percent of our $35 million wireline business revenues are data related and that gives us the opportunity to hold on to and convert these legacy data revenues to strategic services."  

Similar to how U-verse became a key driver in its consumer wireline revenue mix, Stephens expects a similar trend to take place in the business services arena where strategic services take over as the primary revenue drivers.

During the fourth quarter, the service provider reported that strategic business services revenues were $2.8 billion, up 10.3 percent. However, Business Solutions service revenues declined slightly year over year to $18.2 million, down slightly from $18.7 million as strategic business gains offset legacy declines.

"As our legacy revenues become a smaller piece of the pie we're going to hit that inflection point where strategic services growth will be the driver of overall revenue growth," Stephens said. "You saw this happen in our consumer business with U-verse when it hit about 40 percent of the revenue base and you saw us consistently grow quarter in and quarter out consumer wireline revenues and that type of thing is what we're approaching now."

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