Thursday, May 10, 2007

None For You, Former BS Customers

Recent announcements have made it clearer than ever that AT&T is putting the former BellSouth territories in a lower service tier. At least for the next several years it is not going to offer BellSouth's former territories nearly the level of service that it is trying to develop in its home, the former SBC region. The probability that AT&T will become a serious third challenger in upcoming battle between Cox and LUS has significantly dropped. Should they seriously enter the fray it will be mainly to challenge the idea LUS represents.

Costs More; Serves Fewer
AT&T recently announced that it is revising upwards the cost of its Lightspeed network upgrade project and lowering its estimate of how many people it will serve. (Without that upgrade AT&T can't offer video competition to cable or a significant bandwidth increase to customers.) They're now going to spend 41% more offering the service to a million fewer users. And that has serious consequences as Nyquist Capital points out:
Regardless of its true cause, this budget slip significantly changes the economics supporting AT&T’s decision to avoid laying fiber. Previously, AT&T could deliver video services at 1/3 the cost of Verizon. With the slip AT&T’s cost per home went up nearly 50% and is almost 1/2 the cost Verizon FiOS FTTH solution.
Reaction to the fiber to the node (FTTN) plan had already been mixed, with many analysts faulting AT&T for not going straight to a FTTH network. This admission by AT&T is sure to increase that criticism and to increase demands that it follow Verizon in going directly to FTTH without the wasteful interim step. The problem, though, has always been money. AT&T doesn't have any and can't afford to go beyond the cheapo solution. They've depleted their credit buying up their expensive telephone company brethren instead of preparing to compete with cable as Verizon is now doing. Leveraged to the hilt, they can't afford to build fiber without causing considerable shareholder pain and the consequent drop in stock price.

BellSouth's Territories
But if their national plan is uncertain there is little doubt about what is in store for the BellSouth territories that AT&T recently acquired.

They get very little.

AT&T's plan is now described thusly:
AT&T said it now plans to pass approximately 18 million households by the end of 2008. The company said that number doesn’t include its plans for the Southeast [The former BellSouth region], which could increase the number past 19 million homes.
If you factor in the number of subscribers in the AT&T and BellSouth areas you'll see that this means that former BellSouth customers will see about 8.3% availability...and the rest of the AT&T country will see 32% availability. The possible one million houses passed in BellSouth territory amounts to about 1/3 of the households in relatively wealthy, densely populated Miami and Atlanta--and that's not factoring in Orlando, Charlotte, Nashville, or Jacksonville. It's not likely that southern folks outside the very largest metro areas will see Lightspeed upgrades and the U-Verse video product in the near future.

So what do the rest of us get? Satellite.

Yup. Satellite. AT&T's latest announcement is that it is extending it's WildBlue partnership to the BellSouth area. The best subscribers can say about its "up to" 1.5 meg download speeds, glacial uploads, and massive latency is that it is better than dialup. But apparently not enough better to convince most of its rural target population to switch at current prices--satellite broadband has not been much of a success and hasn't gathered any subscribers in locales where the population can choose DSL or cable modems.

So it doesn't look like AT&T will change the current equation for most of BellSouth's former footprint. As no place in Louisiana is any longer list of the 15 largest metro areas in the South, we aren't likely to see much of what little new tech AT&T rolls out. Welcome to the 21st century Louisiana, courtesy of your incumbent telco.

During the fiber fight BellSouth tried to tell Lafayette that they were about to bring competition to town. It was pretty clear even then that under the most optimstic scenario we'd still see only limited deployment. Now it's even clearer that we're unlikely to see even that.

Lafayette made the right decision in voting to build its own network. Without it we'd have to count on Cox to upgrade us even though they would have no significant opposition to prod them locally. With it we'll have inexpensive access to the best technology available anywhere in the country.