On yesterday’s Q2 2022 earnings call, AT&T CEO John Stankey talked a bit about the company’s challenges in its Business Wireline unit.
“There is a sizable base of business revenue coming from legacy voice and data services,” said Stankey. “This business is increasingly facing secular pressures as customers replace traditional voice services with mobile and other collaboration solutions.”
In addition to new competition from the likes of Zoom and Teams applications, AT&T is also dealing with the retraction of revenues from profitable legacy technologies such as MPLS connections.
“On the data front, VPN and legacy transport services are being impacted by technology transitions to software-based solutions,” he said. “Today, approximately half of our segment revenue comes from these types of services.”
Piling on even further, AT&T is seeing stress in its government business. Stankey said AT&T is experiencing government-sector pressure related to the reallocation of spending priorities. “While we're hopeful that some spending will return and the Enterprise Infrastructure Solutions contract volumes and share gains will offset pricing reductions over time, we consider it prudent to reset expectations.”
About 20% of AT&T’s year-over-year Business Wireline revenue declines in the second quarter were due to government spending impacts.
It should be noted that while AT&T admits to a need to “reposition” its business segment, Verizon has been doing very well, albeit under the leadership of Tami Erwin, who is leaving the company at the end of the year.
RELATED: Tami Erwin will leave Verizon at year-end
When Erwin announced her departure, Recon Analytics principal Roger Enter said, “She combines great vision with excellent execution. Her Verizon business group is about 20% of the company, and yet typically brings in like half if not more of the gains," he said. "It’s become like a mantra quarter after quarter.”
Finally, for AT&T, its Business Wireline segment saw cost increases in its wholesale network access charges, which it incurs to provide services to customers outside of its footprint. “This cost pressure resulted in more than 20% of the segment's year-over-year EBITDA decline,” said Stankey.
Stankey said all the challenges “only strengthen our resolve in executing our transformation, including actions to accelerate cost takeouts and simplify our product portfolio.”
But for the rest of this year, AT&T expect Business Wireline profit declines in the low double digits. Its expectations for stabilization extend to the back half of 2024.
AT&T reported 316,000 new fiber subscribers yesterday, and Stankey said fiber will also help it grow its small and medium business subscribers. “Our fiber expansion also provides us with the ability to gain market share in SMB, which is an underpenetrated segment for us,” he said.