AT&T s Wireline Network Is At The End Of Its Economic Life??

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1 Narrowband Issues Gary Wiggins Panel: Obsolescence of Narrowband Assets TFI Communications Technology Asset Valuation Conference January 24-25, AT&T Knowledge Ventures. All rights reserved. AT&T and the AT&T logo are trademarks of AT&T Knowledge Ventures. AT&T s Wireline Network Is At The End Of Its Economic Life?? Property is at the end of its economic life when it will no longer provide a competitive service that will generate a market required return without substantial investment to rehabilitate the property. The core of AT&T s wireline network is copper pair which no longer has the bandwidth to support competitive services required by today s customers. It has lost more than 50% of its customer access lines and continues to lose access lines at a rate of more than 11% per year In excess of 80% of the copper in the ground today is not active It must rehabilitate the network or shut it down, and it has chosen to do both Page 2 1

2 AT&T s WIRELINE SEGMENT Dying Industries Wired Telecommunications Carriers The March 2011 IBIS World Special Report titled Dying Industries identified 10 industries on the verge of extinction in the United States. #1 on the IBIS list: Wired Telecommunications Carriers. Criteria: Industries in the decline phase of their life cycle. During 2000 to 2010, industries experienced a sizeable contraction in revenue and establishments. Industries forecasted further deterioration in revenue and establishments through the 5 years up to Page 3 Page 4 2

3 Why did AT&T Move Forward With Project Velocity IP (VIP) For The Wireline Segment To Spend $14B to Rehabilitate Its Networks? Today many less populated wire centers operate at a loss. Analysts indicate that AT&T found no buyers for its rural networks. Highly unlikely regulators would allow AT&T to discontinue service in rural markets Not cost effective to build fiber deep enough into less populated neighborhoods to gain sufficient bandwidth Needed to increase throughput capacity of metro customers to remain competitive with cable Wireless LTE can provide greater bandwidth at lower cost than a rural copper pair network Competition requires AT&T to complete its Wireless LTE build nationwide to 300 POPs Page 5 Primary Elements of VIP Determined an aggressive transition away from TDM technology to IP was necessary to provide competitive services and address the escalating high cost of operating TDM for the shrinking customer base Project VIP will move 25% of its customers constituting 65% of its service territory off the wireline network and onto the wireless LTE network U-verse coverage will expand to an additional 8.5M customers for a total of 33M homes where the service is offered Speeds will increase up to 75 MPS capability through pair bonding IP DSLAM Broadband service will build to 24M customers with speeds up to 45 MPS U-verse product will not have maximum throughput capacity comparable to cable competitors even after VIP Huge cash flow impact over the next three years that other major carriers will not experience Page 6 3

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6 AT&T Wireless Home Phone The offering, dubbed A&T Wireless Home Phone, became available in late July in select domestic markets where AT&T did not offer traditional landline service, an AT&T spokesman told Telecompetitor today. Page 11 6

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8 AT&T s First Steps Acquire spectrum that will allow provision of LTE Nationwide Spectrum acquisitions either in process or recently completed totaling $2.6B with possibility of $2B more Complete wireless LTE nationwide build-out to 300M POPs by 2014 Identify 2 wire centers that will be used a test beds to trial new services and identify issues: Technology, regulatory, customer transition There are many wireline service offering without equivalent offerings using IP Page 15 Regulatory Issues: Critical First Steps Establish date certain for official TDM services sunset Complete IP enabled service proceeding classifying IP services as information services with minimal regulation Reform/streamline section 214 service discontinuance procedures Implement ETC reform. Declare existing RTC designations will terminate on a date certain Reform interconnection provisions such that carriers cannot be required to provide TDM interconnection Reform wholesale obligations under sections 251/271 to eliminate i unbundling, resale, colocation and other requirements that would require maintaining TDM Page 16 8