AT&T rejects an apples-to-apples comparison with Verizon. "For someone to sit outside our business and try to derive a relative investment value—I can't imagine anyone trying to do that," says Stankey.
Even if AT&T were willing to boost its wireless network investment significantly, figuring out precisely how much to spend without sacrificing profits would be hard. Craig Moffett, a telecom analyst at Bernstein Research, has analyzed various scenarios. His findings: If AT&T were to triple its capital spending on wireless, the value of an iPhone customer to the company would be halved. A sixfold increase in spending would make all iPhone customers worthless to AT&T. Stankey disputes Moffett's conclusions but agrees with "the thought process that we need a return on capital."
Limiting access
Instead of betting big on new investment or aggressively raising prices, AT&T is choosing a controversial third way: It's trying to limit the iPhone features customers can use. The company prohibits Webcasts and file sharing on its unlimited data plans, activities some other carriers allow. "We need to be able to manage our traffic," says Stankey. "You can't have everybody watching YouTube during an emergency." The Net Neutrality movement disagrees with that reasoning. "We're at a critical moment," says Ben Scott, policy director of Free Press, a nonpartisan group that argues telecom providers should have no ability to limit their customers' network access. "Do we as a country invest in bandwidth, or the network tools to limit bandwidth?"
Instead of betting big on new investment or aggressively raising prices, AT&T is choosing a controversial third way: It's trying to limit the iPhone features customers can use. The company prohibits Webcasts and file sharing on its unlimited data plans, activities some other carriers allow. "We need to be able to manage our traffic," says Stankey. "You can't have everybody watching YouTube during an emergency." The Net Neutrality movement disagrees with that reasoning. "We're at a critical moment," says Ben Scott, policy director of Free Press, a nonpartisan group that argues telecom providers should have no ability to limit their customers' network access. "Do we as a country invest in bandwidth, or the network tools to limit bandwidth?"
AT&T also takes a hard line on iPhone "tethering," the process by which users hook up a computer to a smartphone to gain Net access. Most carriers allow tethering for a small fee. AT&T does, too, but not for the iPhone; instead, iPhone customers who want laptop Net access must pay at least $40 a month for a separate mobile laptop device and data account. Mackay Bell, a 39-year-old freelance writer in Los Angeles, says he's "pissed off" that AT&T won't let him tether. "It's ridiculous that I should have to get a USB toggle and pay so much extra," he says. His blog, at attcritic.blogspot.com, features the AT&T logo as Dr. Evil from the Austin Powers movies. Bell says he would jump at the chance to have a Verizon iPhone. AT&T says it plans to offer iPhone tethering, but for now, says Stankey, "You don't want to throw more gasoline on the fire."
The Mackay Bells of the world wouldn't be so worrisome for AT&T were its once-mighty landline business still strong. But Bernstein estimates that the unit's profit margins will fall from 32% today to 26% in three years, which translates to a $3.6 billion plunge in that segment's operating income. Like the rest of the telephone industry, AT&T is being hit hard by the growing share of households opting for only cell phones. It also has been buffeted by competition from cable companies, which bundle phone service as part of their phone, Net, and TV packages. Upgrading phone lines to compete with cable companies isn't cheap. FiOS has gone from zero customers to 3.5 million in five years—but to get there, Verizon is investing more than $23 billion in fiber-optic wires.
Fraying landline
Given the economics of landline telecommunications, it's little wonder AT&T hasn't made a market-altering investment in its U-Verse service. The company hasn't divulged how much it has devoted to date, but says it has invested less than half of what Verizon has spent per customer home. CreditSights' Zhao places the total U-Verse investment in the vicinity of $10 billion. AT&T concedes that it won't be rolling out U-Verse to 100% of its homes and will opt instead to resell third-party satellite television in the homes it isn't rewiring. "Instead of bundling a good value proposition to keep customers away from the cable triple play, they adopt half-baked solutions," says Zhao. Bruce Kushnick, chairman of TeleTruth, a consumer-advocacy group, calls U-Verse "a cheap copper afterthought" and faults AT&T for neglecting its still substantial number of landline-only households.
Given the economics of landline telecommunications, it's little wonder AT&T hasn't made a market-altering investment in its U-Verse service. The company hasn't divulged how much it has devoted to date, but says it has invested less than half of what Verizon has spent per customer home. CreditSights' Zhao places the total U-Verse investment in the vicinity of $10 billion. AT&T concedes that it won't be rolling out U-Verse to 100% of its homes and will opt instead to resell third-party satellite television in the homes it isn't rewiring. "Instead of bundling a good value proposition to keep customers away from the cable triple play, they adopt half-baked solutions," says Zhao. Bruce Kushnick, chairman of TeleTruth, a consumer-advocacy group, calls U-Verse "a cheap copper afterthought" and faults AT&T for neglecting its still substantial number of landline-only households.