Should, or will, AT&T and Verizon divest their landline access networks? It is a question more seem to be asking these days, even in the consumer press.
There is a simple, “weak” version of the question, and a more-challenging, “strong” version. The “weak” version is that both AT&T and Verizon are likely to continue to divest fixed network assets wherever they do not already operate, or intend to build, fiber-reinforced networks of some sort.
The economic rationale is clear enough: without the ability to sell a triple-play service, neither AT&T nor Verizon, with their embedded cost structure, can afford to operate fixed networks.
Typically, that has meant it has made sense to divest rural assets.
The slightly-bigger issue is what Verizon, for example, might do about its networks in Baltimore and Boston, where Verizon says it has no plans to build FiOS networks.
The “strong” form of the argument is that, there might come a day when the revenue available to AT&T and Verizon from its landline operations becomes so unfavorable that even those assets are candidates for divestiture.
Among the issues there are availability of buyers, suggesting that a spin-off would be more likely than a sale. The other issue is how both firms would handle support for enterprise clients, even if it was deemed reasonable to exit the consumer side of the fixed networks business.
Some would argue that it is Verizon which is the more likely to consider an actual divestiture of fixed network assets. Verizon has a much-smaller fixed network footprint and already has signaled its willingness to move “out of region” as a “national CLEC” with its proposed agency agreements with Comcast, Cox Communications, BrightHouse Networks and Time Warner Cable.
Verizon also has shown more interest in the idea of using Long Term Evolution as a way of supplying broadband connections for at least some portion of the broadband prospect and customer base. Users in single-person households, households that do not watch much online video or work at home are logical candidates for wireless access, even with the usage caps.
Many of us would bet against any such moves, beyond some divestitures of rural assets, for the moment. Fixed-network revenue still represents 47 percent of AT&T revenue and about 37 percent of Verizon’s revenue, and the percentage will keep dropping.
At some point, there is a crisis, with so much in the way of stranded assets, that the business case for either company becomes quite challenging. There is not be a crisis, yet, though.