U.S. Telcos Shift Investment in Direction of Wireless

U.S. telcos and cable companies invested $66 billion in capital in 2011, according to the U.S. Telecom Association. The USTA data shows that cable companies made 19 percent of the investments, while telcos invested about 41 percent of capex in fixed networks and about 40 percent in wireless networks. But investment in fixed networks has dropped dramatically from peak years of the telecom and Internet bubble, in the years leading up to and including 2000. 

Those investment trends are no accident. Mobile revenue is about 4.5 times bigger than fixed network revenue, according to the International Telecommunications Union, and it has been that way for several years. The global telecommunications business has literally become a mobile business, with some important fixed line applications and revenue sources.

"Mobile first" has in turn become the key element of strategy for service providers across the board, either as a primary growth strategy, or an essential strategic challenge for fixed network providers. The flip side of "mobile first" is what should be done in the area of fixed network investment. Overall U.S. figures show a shift to support of wireless networks, since about 1996.

Of course, that will have repercussions. Cable operators are now adding more new broadband customers than telcos.

Verizon reported a loss of about 89,000 DSL connections in the first quarter of 2012, but added about 193,000 new FiOS subscribers. That’s both good and bad news. The good news is that Verizon has a better optical access product than its older copper digital subscriber line access product.

The bad news is that switching an existing account from DSL to FiOS does not actually represent much more than shifting current demand from one access format to another. The revenue upside is rather nil. AT&T gained 718,000 net new fixed network customers in the first quarter of 2012, of which about 103,000 were net new U-verse broadband access customers. But AT&T also lost close to 615,000 DSL customers during Q2 2012.To a point, telcos are making rational choices. 

In some markets, it simply makes more sense to let the broadband access business slowly decline, instead of making big new investments to upgrade to optical fiber-reinforced networks, as much as it might make sense to let the legacy voice business slowly dip. Those decisions typically make most sense for firms with wireless assets, or for some markets that an operator deems “not a core asset."