AT&T remains confident that it is on the right track to get its wireline business services back to positive growth as more customers transition to next-generation strategic services like SD-WAN and Ethernet. But in the near term, the drag from legacy services will continue to be an issue.
John Stephens, CFO of AT&T, told investors during the at the Deutsche Bank Media, Telecom and Business Services Conference that signs of business revenue stability began to appear during the fourth quarter.
“Fourth quarter sequentially is the first quarter where we did not shrink revenues,” Stephens said. “Year-over-year we still were down 3-4%, but in prior years it had been closer to 6%.”
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Like earlier quarters, the challenges in the fourth quarter for AT&T came from declines in legacy services like Frame Relay and ATM. The service provider noted that fourth-quarter declines in legacy products were partially offset by continued growth in strategic business services. Total business wireline revenues were $7.4 billion, down 3.5% year-over-year but up sequentially.
Stephens said that more AT&T customers are adopting next-gen services, creating a new foundation for wireline business revenue growth.
“What’s happened is our customers have embraced the strategic services,” Stephens said. “Strategic services are over a $12 billion annual business and are over 42% or so of our revenue and are still growing quickly.”
Indeed, AT&T’s fourth-quarter strategic business services revenues grew by nearly 6%, or $176 million, versus the year-earlier quarter. These services represent 42% of total business wireline revenues and more than 70% of wireline data revenues and have an annualized revenue stream of more than $12 billion. This growth helped offset a decline of more than $400 million in legacy service revenues in the quarter.
Stopping short of forecasting overall wireline business service revenue growth, Stephens said that AT&T will eventually see a point where strategic services will surpass legacy declines.
“As we get past this inflection point where strategic services are growing at a faster than the degradation of legacy, we can get to a point where we are growing revenues,” Stephens said. “We’re not predicting that but we see the opportunity to do that.”
To achieve these business services revenue goals, AT&T’s business sales team is taking a two-pronged approach: retaining legacy services or converting them to strategic services.
While wireline business services continue to be a key focus for AT&T, the service provider is not surprisingly looking at ways to leverage its wireless network to help customers solve issues in their business.
The wireless network can be used to support a business customer's employee base while enabling IoT applications like monitoring of a manufacturing plant or a trucking fleet.
“As you build this FirstNet network out, things like IoT an coverage for business customers or connect factories that are automated all improve dramatically, and with that comes that opportunity to sell these wireless services,” Stephens said.