All is not well at the Death Star today. AT&T (T ) announced that capex for the U-Verse IPTV & Fiber to the Node initiative (known as Project Lightspeed) would increase from $4.6B to $6.5B. They also announced the scope of the project was being reduced from 19M to 18M homes.
This is a sizable increase (41%) in capex for a project that was designed to minimize cost. It is indicative that the decision AT&T made to substitute advanced technology to deliver an incremental solution in favor of laying fiber isn’t going as planned. The price of mediocrity just went up.
Project Lightspeed involved placing smaller DSLAMs closer to the customer in order to reduce the length of the copper and achieve bit rates of approximately 35Mb/s. This
eliminated delayed the need for fiber to the home, the approach taken by Verizon’s (VZ) FiOS initiative. Instead, AT&T pushed the limits of DSL technology and introduced IPTV as a solution to deliver video.
From the WSJ article:
AT&T blamed the price increase in the cost of adding more servers, which are needed as the company significantly increases the amount of high-definition channels it plans to offer. AT&T is also paying a premium to its equipment vendors to ensure gear is on hand when needed, the company said.
I believe this explanation is nonsense.
It is relatively straightforward to plan for the number of required video servers, they do not scale as a function of channel count – they scale as a function of subscribers.. And I can’t imagine that a project running behind schedule has trouble getting equipment delivered on time. I’m sure vendors would love to ship AT&T whatever they can take.
I suspect AT&T has expended significantly more money on reconditioning existing wires in order to meet the 34Mb/s speed target needed to deliver video and data to a residence. AT&T cannot mention this cost as it would cast serious doubt on their decision to leverage the existing copper infrastructure instead of biting the bullet and putting in fiber.
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.
The truth of the matter is AT&T traded cost for a large amount of operational risk. When they shunned fiber AT&T assumed the risks of inconsistent DSL performance, IPTV software trailblazing, electronics scattered throughout the field, and a sub par experience based on the 35Mb/s limitation.
AT&T is deploying a very complex architecture with major limitations in the interest of saving money. It offers nothing better than what the incumbent Cablecos can provide. And now, this mediocrity comes at a higher price.