AT&T to Add Rural Broadband?

Satellite_dish_(Television)There is one part of the AT&T and DirecTV proposed merger that really has me scratching my head. Buried within the announcement was a statement that AT&T would use this merger to add 15 million broadband subscribers over the next four years, mostly in rural areas. That goes in the opposite direction of what AT&T has been saying for the last several years. For instance, AT&T told the FCC last year that it was going to be asking for permission to cut down the copper lines from millions of rural customers.

And it goes against the trend of AT&T’s broadband sales. Let’s look at the numbers. In 2011 AT&T reported 16,427,000 data customers. At the end of 2013 it was virtually the same number at 16,425,000. So overall, AT&T has been totally flat in the total number of data customers. But looking beneath those numbers we see something else. During that same two years AT&T added almost 1.5 million customers to its U-Verse product, a bundled data and cable product using two bonded copper wires. Assuming that most of these new U-Verse customers are buying data, then AT&T lost a lot of traditional DSL customers at the same time it was growing the U-Verse product.

So AT&T has been losing traditional DSL customers and it has plans to cut down millions of copper wires. And yet the DirecTV merger is going to somehow help it almost double its data customers, particularly in rural areas? How might they do that? I can think of a couple of scenarios.

One possibility is that this part of the announcement is all fluff intended to help get the merger through the FCC. Nothing gets a better ear these days at the FCC than the promise to bring broadband to rural customers. So AT&T might be blowing smoke and hoping that this helps to get the merger approved. But let’s suppose they are serious about this and that they really are going to vigorously chase data customers again. How might they do that? I can think of two scenarios.

First, they could use the DirecTV merger as a reason to reinvigorate their investment in copper. The fact is that AT&T has always had it within its power to do better in rural broadband. Most of its rural DSL electronics are first or second generation equipment, and for a relatively moderate investment they could beef up rural DSL to become competitive. Perhaps bundling it with a TV product that brings a profit stream from numerous rural homes changes the business plan and makes DSL look attractive again as a long-term investment. But I have a hard time believing this. Their rural copper plant is old and I believe them when they say they want to tear it down and get out of the landline business.

The only other option that makes sense to me is that they use a DirecTV bundle to entice people off their copper and onto wireless data. In doing so they would also be furthering their goal of getting out of the copper business. I have written a number of blogs talking about how rural cellular systems cannot take the place of landlines for the delivery of data. Cellular systems are great at delivering bursts of data, especially after being upgraded to 4G, but they are not designed, nor can they be designed to support multiple people watching streaming video. It doesn’t take many video customers to lock up the typical cell site. And this is a matter of physics as much as anything, so there is no easy way to fix this other than to move to really small cell sites with a few customers on each cell. And that would require a big investment in rural fiber.

So I am skeptical of the AT&T announcement. This announcement might have made sense if AT&T wanted to buy Dish Networks, which owns a significant amount of spectrum that could be used to deliver point-to-multipoint data in rural areas. But DirecTV has no broadband assets or plans. My best guess is that they will use this merger as an excuse to move people off copper, something they are already working hard at. But there is also the chance that this is all smoke and mirrors to help get the FCC to approve the merger.

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