AT&T, Verizon’s business revenues challenged by commoditization, cable competition

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AT&T and Verizon's business service revenues face new challenges due to cable operators making a bigger dent in the medium and large enterprise space. (DragonImages/iStock)

AT&T and Verizon’s long-enjoyed stronghold on the business services market is continually being eroded by two emerging factors: service commoditization and the growing threat of cable providers like Comcast and Charter.

AT&T, which will report its earnings next Tuesday, will likely report more losses in their commercial wireline segment. In the third quarter, AT&T reported business service revenues were $17.1 billion, down 0.7% from $17.8 billion in the same period a year ago. As it reported in earlier quarters, legacy services pressured revenues as the structural transition of business wireline continues.

MoffettNathanson said in a research note that AT&T will continue to face struggles in finding profitability in the wireline business service segment.

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“The commercial wireline business was once viewed as better (more defensible) business than residential wireline,” MoffettNathanson said. “It isn’t the case anymore. Commercial telecom services are rapidly commoditizing, leaving fewer and fewer protected revenue streams.”

For Verizon, the pressure on the business segment is just as high.

During the fourth quarter, Verizon reported that Enterprise revenues declined 3.2%. Verizon’s CFO Matt Ellis attributed the losses in the business services segment to “secular and pricing pressures in our legacy offerings and technologies.”

“Trends in enterprise remain weak, as the share loss to cable continues and as creeping commoditization of connectivity continues,” Moffett Nathanson said.

It’s also hard not to notice the momentum of Comcast and other cable operators in the business services market.

Comcast’s business services revenue rose 12.2% in the fourth quarter to $1.68 billion. The cable MSO said the revenue jump was related to increases in the number of customers receiving its small and medium-sized business services offerings. 

During the fourth quarter, Comcast added 33,000 new business customer relationships, and for the year ended Dec. 31, 2017, business customer relationships increased by 135,000.

Perhaps more worrisome for AT&T and Verizon is the fact that Comcast is starting to ramp up its movement into the medium and large business segments, two areas that have been mainly dominated by the top telcos.

“In business services, we’re still in the early stages of bringing our superior products to the addressable markets in midsized and enterprise customers,” said Brian Roberts, CEO and chairman of Comcast, during the earnings call.