AT&T could bring U-verse to another 3M users, says analyst

Remaining customers would be encouraged to adopt LTE

October 19, 2012 | By Sean Buckley

AT&T (NYSE: T) in November will finally unveil what it is going to do with its rural wireline assets, but a report written by George Notter of Jefferies & Company indicates that the telco will update a portion of those customers to its Fiber to the Node (FTTN)-based U-Verse.

Notter wrote that on Nov. 7 AT&T will announce that is going to update 3 million of the 18 million DSL users to U-Verse, with the remaining being driven to its 4G LTE wireless service.

Notter said in the report that the 18 million non-U-Verse access lines are "scattered over 80 percent of AT&T's geographic footprint."

The likely vendor candidate for this proposed upgrade would be Alcatel-Lucent (NYSE: ALU), which was the original FTTN vendor of choice for the original U-Verse network rollout. Notter said an estimated 3-5 million homes would be connected to a FTTN-based network, while the remaining customers would get LTE wireless services.

But according to a number of recent FCC filings, AT&T said it wants to "clear away the regulatory underbrush" that these rural lines are governed by.

As part of that effort, AT&T asked the FCC to set a "date certain for an official TDM-services sunset." After this date, service providers would not have to maintain TDM-based services and network, and service providers and consumers that want to buy these services, including circuit-switched and dedicated transmission services, "would have to switch to IP or other packet-based services."

The two likely scenarios that will come about when AT&T makes its announcement about the rural lines on Nov. 7 is that these customers will be either forced to move to cable or one of the rural-focused telcos such as CenturyLink (NYSE: CTL), Frontier Communications (Nasdaq: FTR) or Windstream (Nasdaq: WIN) will purchase the lines.

One of the interesting things about cable is that they can offer a much higher set of speeds on their existing HFC-based networks than can be offered on 4G LTE or DSL. A growing number of cable operators can offer 50, 100 and now 300 Mbps over their DOCSIS 3.0-enabled networks.

While it's possible CenturyLink, Frontier or Windstream could make a run at AT&T's rural assets, it poses a large risk, as the trio is still completing integration tasks of the purchases they already made in recent years of Qwest, Verizon's rural lines and PAETEC. A recent Fitch Ratings report said that while these lines should not have an effect on the telco's credit profile, an "event risk" remains for this carrier trio.