Many homes in AT&T's local phone service areas will see the company becoming more competitive with cable for broadband service under a new $14 billion, three-year investment plan the company revealed Wednesday. But in more outlying areas, the company will start shifting customers from regular phone lines to wireless service.
Since the moment the company announced U-verse, there have been two persistent questions: Will coverage ever be expanded beyond a subset of its customer base, and will it increase transmission rates – at about 24 Mbps, long believed to be inadequate in the long term. The new expansion, referred to as Project Velocity IP (VIP), finally answers those questions.
U-verse already covers about 24 million homes; the expansion will extend coverage to another 8.5 million homes and businesses. The Project VIP plan includes an upgrade for U-verse to speeds of up to 75 Mbps and for U-verse IPDSLAM (data-only) to speeds of up to 45 Mbps, with a path to deliver even higher speeds in the future. The company did not specify what version of DSL it will be upgrading to.
Like other phone companies, AT&T is having a hard time competing with cable broadband in much of its service area, because regular "DSL" broadband is now much slower than what cable companies offer.
In the 25 percent of AT&T’s wireline customer locations where it’s currently not economically feasible to build a competitive IP wireline network, the company said it will rely on its 4G LTE wireless network – which it is also expanding – to offer voice and high-speed IP Internet services.
The company had already planned to expand its LTE network to cover 250 million Americans by the end of next year. The new plan is to cover 300 million Americans (the total population is currently about 315 million) by the end of 2014. By its calculations, AT&T says that network expansion means it will be able to cover 99 percent of the population with broadband.
The company has purchased some spectrum for the expansion and expects to purchase more, but to use the spectrum effectively, it expects to deploy small cell technology, macro cells and additional distributed antenna systems.
After reviewing its options, AT&T concluded that it won't sell off phone lines in outlying areas like Verizon Communications did. Instead, it will pursue a split strategy of upgrading some areas to higher speeds and abandoning phone lines in less dense areas in favor of wireless.
Specifically, the company said it would extend its wired IP broadband network to reach 75 percent of customer locations in its 22-state service area by year-end 2015. Fiber deployment is expected to reach 1 million additional business customer locations, covering 50 percent of multi-tenant office buildings in its service area.
AT&T already sells a "wireless home phone" box that buyers can plug a regular home phone into. It then relays the signal wirelessly to an AT&T tower.
To help shift households to wireless, AT&T said it plans to build out its 4G LTE wireless network to cover 300 million people. Of the $14 billion investment, $8 billion will go to the wireless network.
Data speeds on 4G LTE are often faster than DSL and can be comparable to cable, but since AT&T has limited space on the airwaves, it imposes caps on monthly data usage that are much lower than those for wired broadband. That means customers who replace wired broadband with wireless will find it expensive to use data-intensive services like TV-quality streaming video.
Not all of the $14 billion represents an increase over AT&T's regular $19 billion to $20 billion in annual capital spending. The company expects to spend roughly $22 billion a year for the next three years, it said, before returning to more normal levels.
Still, investors were not happy about the plan to invest more in the wired operations, which are only marginally profitable. AT&T shares fell $1.21, or 3.5 percent, to $33.59 in midday trading as broader indexes fell about 2.5 percent.
Speaking to investors in New York, AT&T CFO John Stephens said the investments in wired and wireless infrastructure would be "mutually supportive," with faster lines helping to serve cell towers. That's part of the reason the company decided not to sell off local phone service areas.
Dallas-based AT&T is the country's largest wired phone company, serving 33 million traditional phone lines in 22 states. It's the second-largest wireless carrier, after Verizon Wireless.
At the same time, AT&T announced it is participating in the ISIS mobile wallet joint venture, which has market trials underway in Austin, Tex., and Salt Lake City.
The company also noted that more than half of new vehicles are expected to be wirelessly connected by 2016. AT&T will attempt to exploit the opportunity, starting with the ability to provide vehicle diagnostics and real-time traffic updates, eventually to consumer-facing applications that tie into retail wireless subscriber data plans. AT&T said it already has deals with Ford, Nissan and BMW.
Also Wednesday, AT&T said it's raising its quarterly dividend by 1 cent to 45 cents per share. The next dividend payment is on Feb. 1. AT&T has raised its dividend every year for the last 29 years.
– The Associated Press contributed to this report