AT&T Business’ Q3 wireline revenues dip as the next-gen transition continues

Oct. 23, 2023
The service provider faces ongoing revenue headwinds from businesses migrating from legacy services while wireless shows potential.
As AT&T saw more business customers ditch legacy voice and data services like T-1s, business wireline declines continued in the third quarter.

The unit’s revenues were $5.2 billion, down 7.9% year over year due to lower demand for legacy voice and data services and product simplification, partly offset by growth in connectivity services, and this quarter also included approximately $100 million in revenues from intellectual property sales, which AT&T said were relatively consistent with the prior year.

AT&T Business wireline operating expenses were $4.9 billion, down 3.5% yearly due to lower personnel costs associated with ongoing transformation initiatives and lower wholesale network access, customer support and marketing expenses.

Pascal Desroches, Senior EVP & CFO, told investors during the third-quarter earnings that the ongoing movement to next-gen services like Ethernet, fiber and SD-WAN continued to drag on its results.

AT&T Business has a lot of potential to sustain the wireline business side. Over 800,000 U.S. business buildings are lit with fiber from AT&T, enabling high-speed fiber connections to approximately 3.3 million U.S. business customer locations. Over 10 million business customer locations nationwide are on or within 1,000 feet of its fiber.

“Overall, Business Wireline remains in transition as we move from offering legacy products to next-generation connectivity products,” he said. “Connectivity solutions are also growing in the high single digits due to momentum with fiber as we make it available for more small- to medium-sized businesses.”

However, he added that wireless remains a bright spot in the overall business services unit and forecasts smaller drops for 2023. “Total business solutions year-to-date, EBITDA is down slightly year-over-year as wireless growth largely offsets declines in wireline,” Desroches said. “We see the same underlying trends year-to-date with Business Wireline EBITDA, and we now expect low double-digit declines for the full year.”

Riding technology changes

As a legacy service provider with older services like T-1 and other lower-speed services, AT&T faces the challenge of how technology transitions often don’t mean it gains new revenue from one customer.

Like its peers, Verizon and Lumen Technologies, AT&T is seeing more customers adopt services like SD-WAN and Ethernet, which offer grander scale and efficiencies.   

“One of the most significant impacts occurring in the fixed wireline business is what I will call the secular change of technology,” said John Stankey, CEO, president, and director of AT&T. “So it's the managed complex networking shift toward SDN, which means provision raw bandwidth and use software. You shift -- you may keep a customer and continue doing business with a customer, but you don't shift that technology dollar for dollar.”

He added that the second dynamic is discontinuing low-margin product sets that “are inconsistent with our ability to sell that core transport in that secular shifting environment.” “When we were engineering and provisioning highly complex and managed networks, we often had to bundle and bring things together, which meant we had to distribute and layer on top of that other products and services,” Stankey said. “The second dynamic is us backing away from layering on the resale of some of those services. And I would point out that while we report on fixed business segment specifically, it's a very different story when you look at our aggregate business performance.”

Business wireless potential

While AT&T has seen challenges from its business wireline, wireless potential continues.  

Wireless service revenue was up 7%, benefiting from continued growth in postpaid wireless subscribers and connected devices.

Stankey said it is seeing more businesses cite wireless as an essential tool. “We're on the front end of many businesses now understanding that wireless technology is their next strategic frontier of how they engineer their processes and their company,” he said. “And I'm pretty bullish that what we saw in the early days of VPN where managed networks and managed capabilities and supported capabilities on complex networks was a big growth cycle in enterprise customers.”

He added that, like VPNs, wireless services for businesses will also rise. “I think we're going to see the same thing emerge on the wireless side,” Stankey said. “And when we have the presence we do in these large customers, the fact that we're calling on them with one set of services and we can sell both sets of services is significant for us, despite some of the secular headwinds we're taking and the technology shift out on the fixed side.” 

For related articles, visit the Business Topic Center.

For more information on high-speed transmission systems and suppliers, visit the Lightwave Buyer’s Guide.

To stay abreast of fiber network deployments, subscribe to Lightwave’s Service Providers and Datacom/Data Center newsletters.