AT&T and Verizon Need Over-the-Top, Wireless to Sell to the Whole Market

When any ISP or communications service provider reaches a new subscriber milestone, it also highlights the limitations of geography-based revenue models.

AT&T, for example, has signed up more than 10 million customers for AT&T U-verse high speed Internet service by mid-November 2013.

But consider that the U.S. housing market includes 132.4 million housing units. Of those housing units, 76 million are owner occupied. Some 38.8 million are renter occupied. Some 13.4 million units are unoccupied and some 4.1 million units are occupied only part of the year (seasonal use).

So, about 114 million housing units constitute the addressable market for high-speed access. At 10 million paying customer locations, AT&T U-verse now reaches about 9 percent of those locations.

If AT&T reaches 57 million connections, and signs up 40 percent of those locations, it might serve perhaps 23 million homes, or about 20 percent of U.S. homes.

And points up the problem all geography-bound fixed network providers face: they cannot sell services to “all potential customers,” only the potential customers who live in areas where providers have licenses to operate.

Granted, that always is a problem for communications or video entertainment providers. But some providers have national franchises (satellite video providers such as DirecTV and Dish Network) or nearly national franchises (mobile service providers AT&T, Verizon Wireless, Sprint and T-Mobile US).

You can sense the difference: wireless networks can in principle sell services to all households. Fixed networks, even the largest of fixed networks, can sell only to a fraction of all households.

At some point, the challenge for fixed network providers becomes “how to sell services to prospects not reached by my network.” And that means creating services that can be sold “over the top,” on any high speed access connection, including those connections not actually owned by the provider.

And though it might increasingly be unclear whether AT&T or Verizon Communications might want a national platform for supplying subscription video entertainment on an owned network, the only way either AT&T or Verizon could sell to every potential household would be to use satellites.

U-verse connections now represent about 60 percent of all of AT&T’s wireline broadband subscribers, compared with 43 percent in the third quarter of 2012.

AT&T’s Project Velocity IP, the three-year AT&T investment plan to improve its mobile and fixed IP networks, will reach about 57 million fixed network customer locations by the end of 2015, AT&T said.

AT&T reported 9.7 million high speed Internet subscribers and 5.3 million TV subscribers at the end of the third quarter of 2013.

Total U-verse revenue grew 28 percent in the third quarter, compared with the same quarter of 2012.

Seven years ago, AT&T’s revenue from U-verse was zero. Now, annual revenue is $12 billion. How much bigger U-verse revenues can grow is the issue.