Finance

Telcos: The Copper Must Go

AT&T, Verizon Target Fiber Upgrades For 2013 1/27/2013 7:00 PM Eastern

AT&T and Verizon Communications are looking to replace thousands of miles of copper with fiber this year, as both telcos strive to sustain their momentum in fiber-fed TV and broadband services.

In 2012, Verizon migrated 223,000 homes from copper-based lines to fiber. That contributed to an 11% improvement in trouble reports across Verizon’s entire copper network for the year, according to the telco. The company said it is targeting 300,000 additional homes for copper-to-fiber migrations within FiOS markets in 2013.

In fact, in recovering from the damage inflicted by Superstorm Sandy — which Verizon said resulted in $319 million in direct costs in the fourth quarter of 2012 — the telco accelerated fiber migrations in both the enterprise and FiOS markets, chief financial officer Fran Shammo said on a call with analysts.

“Superstorm Sandy showed the reliability of the fiber network even in this type of a catastrophe,” Shammo said. “Copper does not mix with water. Fiber optics doesn’t care if it is in water.”

AT&T plans to expand the fiber-to-the-node U-verse network to 33 million homes passed by the end of 2015 (up from its previous 30 million-home footprint). That falls under its $14 billion Project Velocity IP capital spending plan, which earmarks $6 billion over the next three years for wireline enhancements.

In addition, by year-end 2013 AT&T is aiming to build out next-generation DSL to 24 million households to deliver speeds of up to 45 Megabits per second — not enough to support IPTV, but still nearly double its current fastest broadband tier.

“We’re not disclosing specific levels of fiber-to-thebuilding or expansion of the U-verse footprint at this time, but you can think about it as a kind of radical build schedule as we go forward,” AT&T CEO Randall Stephenson said on the telco’s earnings call.

Still, of all U.S. telecom capex spending in 2013, only wireless will increase, according to estimates by Raymond James & Associates. The research firm projects wireless spending will rise 3% for the year, with telco wireline capital spending declining 1% and cable operator capex down 4%.

The telcos continued to show operational gains from their respective investments in advanced networks, off - setting losses of traditional DSL and voice lines.

Verizon gained 144,000 net new FiOS Internet and 134,000 net new FiOS TV subscribers, lighter than in the year-earlier period but still solid considering the disruption caused by Sandy.

For AT&T, U-verse continues to buoy the consumerwireline unit, with the telco adding 192,000 TV and 609,000 U-verse Internet customers in the fourth quarter of 2012. U-verse is on a $10 billion annual run rate and represented 61% of AT&T’s consumer wireline revenue in Q4.

AT&T said it sees more upside ahead, with U-verse TV penetration of customer locations at 18.7% at the end of the fourth quarter (compared with FiOS TV penetration of 33%).

“We believe the best is yet to come [for Uverse],” AT&T chief financial officer John Stephens said on a call with analysts. “We think there is a lot of room for growth here. Penetration rates are just starting to climb, so the runway is long.”

Separately, last week AT&T’s U-verse experienced outages across at least 10 states. The telco said the vast majority of the affected subscribers were restored by last Thursday (Jan. 24), after a critical server failure resulted in outages across the Southeast and Southwest regions. AT&T said less than 1% of U-verse subscribers were affected.

 

TAKEAWAY

Increases in fiber-fed TV and Internet subscriptions drove operational gains at both AT&T and Verizon in Q4, reinforcing the companies’ respective investments in replacing copper lines with fiber optics.

 

March