AT&T to Speed Up Its 3G Network

Includes: AAPL, T
by: Eric Savitz

Speaking at the Wall Street Journal’s D: All Things Digital conference in Carlsbad, California Wednesday morning, AT&T (NYSE:T) CEO Randall Stephenson said data speeds will be 2x or faster as it rolls out an upgrade to its 3G network. The upgrade was announced this morning.

Stephenson was interviewed on stage at the conference by the Journal’s Walt Mossberg.

Stephenson talked about 4G networks, customer churn, the iPhone and various other topics. Here are some bullet points from the interview:

  • WSJ poll found top reason not to use an Apple (NASDAQ:AAPL) iPhone is people don’t want to use AT&T as their carrier. Stephenson says the number one reason for churn in the industry is always network quality. Stephenson says their churn is coming down, while other companies are seeing higher churn.
  • Mossberg asserted that AT&T was not really ready when Apple launched 3G iPhone. Stephenson says they had 300 markets. He says they have caught up to volumes, and that the network is performing well, with the quality improving. It continues to get better, we’re making good progress, he says. He concedes that one reason for lower churn might be that people don’t want to give up their iPhones.
  • Mossberg says he gets frequent reader mail complaining about AT&T service coverage. Stephenson says they are way down the road in terms of the level of data traffic on the networks. Behavior changes radically. He says they are a year ahead of other carriers in terms of network management, to manage the volumes and behavioral changes from adoption of new devices.
  • Stephenson says current networks are not going to cut it in the long term, which is why they spent $9 billion on spectrum - and why LTE is important. LTE is fourth generation wireless network. Global standard for 4G networks. Trying to get there as quick as we can. These things never seem to evolve as quickly as we like. Deploy on limited basis in 2010; really scales in 2012, with multiple handsets. New phones will be required.
  • LTE is far more efficient in terms of data throughput and speed, he says. 20 meg plus will be possible. Not like fix line networks. Depends on many factors, foliage, people on each cell site. Typically get less than half of optimal performance.
  • Wednesday morning, as noted, AT&T announced faster 3G broadband speeds, rolling it out aggressively, more than doubling the theoretical speed of the networks. Several data cards have this capability; not all. Current handsets won’t be able to use it, but there will be handsets capable of using the new HSPA 7.2 standard later this year.
  • On WiFi, where they own Wayport, which is providing the Internet access in this hotel: Stephenson says wired broadband will remain a staple. Wireless broadband is growing. But need bridge between the two. Won’t be able to provide ubiquitous WiFi, but it does provide bridge between wired and wireless broadband. Noted that 37% of traffic on WiFi network is from mobile devices. They are at 20,000 Wayport sites. Starbucks deal: they are taking over all of their WiFi network.
  • Stephenson says automatic authentication is a target they are working toward this year.
  • Fixed broadband growing well with U-verse. 1.3 million video customers. Added 280,000 video customers last quarter. Growing at same rate roughly as Verizon in digital TV.
  • Stephenson says they can take it up to 40 MB or 50 MB in terms of data speeds on U-verse.
  • On the impact of the economy, he says it has had an effect on the top line, due to enterprise customer segment and the consumer telephone business. Home phone is being disconnected at faster rate. Continue to invest in wireless first and foremost., mobilize apps and services. Continue to invest in wireless infrastructure, and in getting more bandwidth to homes and businesses. Now passing 18 million homes, by 2011 will be at 30 million homes passed. Compare with 1.3 million video customers.
  • You have to continue to invest in key areas, Stephenson says.
  • In wireless, he says competitors also investing. A lot of capital is coming into the wireless business. In broadband, cable guys have not slowed down. Telecom structurally in a good place. Regulatory structure continues to bring in capital.
  • On iPhone impact: It’s worked out terrific. No complaints. On our side, he says, we’ve incurred a lot of dilution to roll it out, but at end of the day, a very wise investment. Getting the premier customer in the segment. $100 revenue per month customer, low churn customer, product that has changed the face of wireless communication. Applications are a result of this roll out. “I’m very pleased.” He declines to say what Apple charges them for the phone.
  • Stephenson says seeing dramatic uptakes in data usage. Pricing models will change over time, he says. How it changes will depend who you are. He notes that costs are variable in wireless - every new bit has a direct cost tied to it, unlike wireline business. AT&T margins are 40%-plus in Q1 on wireless business.
  • Would I like to see Palm (PALM) Pre on our network? Of course. We want broad selection of devices.

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