A couple of months ago, I wrote about AT&T's shrinking landline telephone business. In the first quarter of this year, AT&T was losing around 18,000 telephone customers a day, mainly due to customers opting for less expensive phone service from their local cable company. In total, AT&T lost 1.6 million phone customers in the first three months of 2009. GigaOM has a great post about the overall downward trendline that AT&T is experiencing when it comes to basic phone service.
According to Om Malik, three years ago, landline revenues for the phone company were estimated to decline 3.3 percent annually through the end of this year. In reality, those numbers fell off a cliff starting in the second quarter of last year, and are only expected to continue to decline at between 6 percent and 6.6 percent for each quarter through the end of this year.
To combat the number of customers leaving AT&T, Malik appears to argue that AT&T's business strategy ought to shift resources toward deploying its U-Verse video and broadband product because cable customers might switch to AT&T for that product. But the technical problems AT&T faces in upgrading U-Verse to the next level of broadband speeds, faster than it's current theoretical maximum of 18 Mbps, are daunting and they're probably the reason that Ma Bell has significantly slowed down U-Verse deployment.
Fact is, cable's superior broadband speeds and higher capacity coaxial networks are translating into a majority of new customers opting for cable over Ma Bell for their video and data solutions. And cable's phone product continues to grow at quite the healthy clip.
Why? Two simple reasons. First, when Congress passed the 1996 Telecommunications Act, cable operators raised capital and spent over $150 billion over the following ten years upgrading their networks to prepare for the coming revolution in telecommunications. Meanwhile the phone companies hemmed and hawed and did little investing until they realized that they were risking their very existence by doing nothing. Then is was simply a game of catch-up.
And second, even though AT&T's advanced U-Verse product is a big improvement over their conventional DSL plant, they still have to use 100-year-old copper twisted pair technology to reach people's homes from node. As a result, limitations on broadband speeds and simultaneous high definition viewing are compromises many Ma Bell customers have to endure, depending on where they live.