AT&T says wireless won’t be a last-mile replacement for fiber

We’re looking back on a year of life under a pandemic, and it’s clear that the internet remains everything. As long as you have access. 

The year showed us just how much that infrastructure could use some improving. We called one of the country’s biggest internet and wireless providers, AT&T, which has been criticized for rolling out high-speed fiber to only about 30% of the homes in its 21-state territory.

The company says it’s investing heavily in 5G. It just spent $23 billion on wireless spectrum. The person in charge of building out these networks is AT&T Communications CEO Jeff McElfresh. He told me AT&T plans to keep expanding fiber to 3 million more customers this year and that wireless won’t be the last-mile solution in place of fiber. The following is an edited transcript of our conversation.

Jeff McElfresh: The demand is increasing at a pace that really only fiber itself can satisfy. And in the next five years, we’re going to see a five [times] increase in the demand placed on broadband networks. We’re also augmenting in investing in our wireless networks to serve for mobility applications of broadband. You know, things like students who don’t prefer to be trapped inside of a Wi-Fi hot spot and prefer to be highly mobile and still have a very rich, high-capacity, high-bandwidth experience.

Molly Wood: There are still holes, and some of those holes were really laid bare over the past year. AT&T CEO John Stankey said on your last earnings call, actually, that it doesn’t see fiber as viable in many rural markets. Is the plan to sort of not be there?

McElfresh: No, actually just quite the opposite. And because we are both a fixed and a mobile network, I’d like to think of us as a bit of a hybrid platform. And in the rural markets, where we have been investing heavily in our wireless infrastructure, we would look to serve the best that we could with our wireless assets, the bandwidth demands, in lieu of deploying fiber. And you know, it’s just the economics at the end of the day. When you look at the density of rural America, the amount of households or customers per square mile is clearly a lot, a lot smaller than it is in the dense urban or suburban areas. And so in those applications —

Wood: Respectfully, I want to say, you just told me fiber is way better and that wireless shouldn’t be the last-mile solution. So, are we creating a new digital divide? If it really is a light-touch regulatory framework where you’re not required to put infrastructure there?

McElfresh: No, I could see how you might draw that conclusion. But let me offer this point of view that a wireless network is a shared asset. It’s a shared network. And so, when you deploy wireless to solve for fiberlike services in a dense environment, you don’t have the capacity. But in a rural setting where you have fewer consumers, in a given geography, you can approach the fiberlike experiences with wireless.

Wood: You know, we had this light-touch regulatory approach, which was basically let the market decide where, where and when it wants to build, where and when companies want to build. Are we getting to a point where there might be a heavier-touch regulatory approach that says you have to build here?

McElfresh: I doubt that, given that the competitive marketplace has proven that there is such a large capacity via wireless networks and fiber networks, where we are underpenetrated, where society has not gained access to those networks. It’s beyond just the building of them, Molly. I think that’s only one leg of the stool. There needs to be support for all members of society to have the devices to access that network, not just the cost of the service, but the actual devices to connect. And then the third leg of the stool is a rich ecosystem of applications that make those connections productive. A good example might be, if you take a look about unemployment and trying to find a job, you still have to go through a labor office today in a local municipality to figure out where there might be work available. Digitizing that capability makes for productive use of that network. And so, do I think that there’s going to be regulation to assist us in doing this? I hope so. And we look to form that policy in a way that the Universal Service Fund-enabled networks and devices to access those networks become a little bit more commonplace across all. That kind of reform is what AT&T is advocating.

Wood: Got it. So that something like the Universal Service Fund could or should be expanded to help with the affordability gap?

McElfresh: That’s exactly correct. And you think about programs like [the Supplemental Nutrition Assistance Program] and Lifeline, where we’ve actually placed the choice points in the hands of the consumer themselves, it has proven to be a very productive mechanism to get subsidized services. I mean, we already offer subsidized broadband access throughout all of our networks. And we support distance learning and providing for broadband-connected Wi-Fi [mobile routers] back in our networks. But that’s just not enough. I mean, that is not going to move the needle enough. We need something that is formulative, something that is structural and that is persistent. Because you know, as we talked at the very beginning, building out physical networks doesn’t happen in a quarter or two. It takes years upon years of investment, and we’ve now arrived at a time where our wireless infrastructure in this country has actually got the capability of having throughputs and capacity and speed that rivals that of what I would view as a legacy copper network. My parents, who live in suburban Texas, they don’t have access to fiber in their own neighborhood. They’re on a copper-based DSL service, and they may get 10 to 15 [megabits per second] of service a month. Wireless networks today actually provide for an even better experience than that 10 to 15 [megabits]. So is wireless an alternative as an option for us to throw at the challenge of the digital divide? Absolutely, it is. Is fiber? Of course it is. We’ve got fiber deployed throughout the metro market areas where gaining access to that network is gonna require some structural and policy frameworks, I think, in order to really make that pop.

Wood: I want to ask about competition. The [American Rescue Plan] and some other congressional proposals are, could pump a lot of money into building out broadband infrastructure, including potentially at the local level. I wonder how you’re thinking about competition in the future?

McElfresh: Well, we like, we like how we currently are positioned in the market, Molly. I mean, to think that we’ve got a multitude of products and very scaled and robust networks with our fixed and our mobile networks. We don’t really view that as a competitive threat, in that, you know, we’re going to be called upon to participate in closing that digital divide and the building out of infrastructure. And that’s why, in addition to some of the infrastructure bill, and the concepts that are being discussed today with our government officials, and how that gets distributed at a state and local level, along with broadband relief bills and the American relief funds coming, we’re at the table. And we’re actually leaning in in support of getting this kind of investment made. Because we know firsthand as one of the largest-scale network operators in America, the second that you put a network to be productive for society, the economy flourishes.

Wood: But you got to be keeping an eye on Elon Musk, though, right? I know I am.

McElfresh: Well, we keep an eye on Elon all the time. I mean, what he has done with his businesses are nothing short of impressive. But as I mentioned earlier, the bandwidth demands that we see coming forward, based on the trends in the data across our wireless and our broadband networks, we don’t really see low-Earth-orbit satellites or any other potential products as a direct competitor to the robust broadband that you and I have been spending the majority of our time discussing. Will it fill edge cases? Absolutely it will, no differently than our scaled robust wireless assets will cover edge cases. But for the masses, we don’t see that as a threat.

Related links: More insight from Molly Wood

McElfresh reiterated the company’s statement to us, in response to a report that accused it of prioritizing wealthy neighborhoods, that the company is not redlining digital infrastructure.

The company also stopped connecting new customers to its DSL network back in October. That led a lot of people, including me, to wonder if the company planned to stay in the internet game at all or if it was just all in on entertainment now that it owns Time Warner and all the different flavors of HBO that entails.

That’s mostly what investment analysts seem to want to ask about, judging from an investor call AT&T held last week. And AT&T reported a big jump in HBO and HBO Max subscribers in the last quarter, putting it on track to be a $15 billion business.

Honestly, AT&T is a little bit of a mess. On the one hand, it’s gaining streaming subscribers. On the other hand, it’s spinning off DirecTV after losing millions of subscribers. It’s deep in debt and it’s hoping for a ton of new wireless subscribers to pay it back. So, we’ll see.

Wednesday on the show, we’ll talk about how the pandemic is changing education. A report from Washington state looks at ways that online and remote learning could end up being a permanent aspect of school going forward, as long as there’s the money and the will to make sure everyone can keep up.

And related to Monday’s interview with Amy Webb, the Future Today trend report for 2021 is out. It’s got good reading on the cloud, synthetic biology, augmented reality … all kinds of good stuff. It’s coming out in conjunction with the virtual version of South by Southwest that’s happening this week, which reminded me of a year ago when South by Southwest worked like the dickens not to cancel that event to an almost absurd and dangerous degree. And yet here we are a year later, and it’s heartbreaking that it can’t go forward for another year in a row.

This thing? Has gone on way too long.