AT&T finds itself four years into a broad transformational effort that started with Project VIP in 2012 and extended to its Domain 2.0 program, and the company acknowledged it still has a long way to go. Fortunately for the operator, it is far ahead of most of its peers, many of which are slow to transform their businesses, both how they architect their networks and how they go to market.
AT&T demonstrated it is at the cutting edge of innovation in key areas, particularly in software-defined networking (SDN), Connected Car and network security, among other areas. The company is also making the tough moves to adapt its workforce and alter its culture to transition to a software-defined world. Technology Business Research Inc. (TBR) believes AT&T is building a sustained time-to- market advantage over its competition, which puts the company on a path to outperform the broader telecom market in coming years.
Event overview
Over 135 analysts converged at AT&T’s world headquarters in Dallas to hear directly from C-Level and senior executives what the operator is up to in business, technology and go-to-market strategy, and where the operator aims to be in the future. Though this was AT&T’s eighth annual industry analyst event, it was the first analyst event AT&T held incorporating the consumer and business segments — prompted by the reorg the operator underwent in 2014. For this reason, TBR was able to get a holistic perspective on where AT&T is headed over the next few years.
The executive team focused on AT&T’s core beliefs and strategy and the transformation the company is undergoing to become a scaled, integrated carrier. SDN was a hot topic during the event, as AT&T is the first to market with software-defined solutions, including its Network on Demand service. Breakout sessions and one-on- one briefings followed the executive presentations, in which company representatives discussed a variety of hot topics, such as security, cloud, network and Internet of Things (IoT). All of the presentations provided color around
AT&T’s four core foundational value propositions — providing ubiquitous connectivity, providing integrated solutions, having the lowest marginal cost structure, and expanding internationally.
AT&T broke down how its recent acquisitions (e.g., Leap, DirecTV, Iusacell, Nextel Mexico) fit into its broader strategy going forward. On one hand, the operator is investing heavily in international expansion in Mexico and has a large long-term growth opportunity. On the other hand, the DirecTV acquisition sets up AT&T with over 39 million opportunities to sell integrated services within its footprint, not to mention the other cable and wireless customers it can now target with its bundled offerings. Further, AT&T provided clarity on how Leap’s Cricket brand fits into its prepaid strategy and talked up the unit’s outperformance since coming into the fold and being revamped.
Impact and opportunities
“Software-defined requires the workforce to change.” — John Donovan, senior executive vice president, AT&T Technology and Operations
AT&T made it clear the transition to becoming a software-defined operator will not be easy and the hardest part is not implementing the technology, but rather, reskilling and adapting the workforce to the new network environment, which involves breaking down silos and encouraging interworking groups. AT&T is tackling this challenge head on and made it a strategic imperative to retain and retrain as many employees as possible to not only save costs of obtaining new people, but also to avoid as many cultural issues as possible.
AT&T aims to retool its workforce by offering educational programs, including full degrees from accredited colleges such as Georgetown University, as well as “nano” degrees that teach employees specific skills. Despite this effort to retrain headcount, job cuts will remain inevitable as AT&T evolves, with tens of thousands of jobs potentially on the line on a net basis. AT&T is augmenting its internal retraining strategy with hiring from the outside to bring in critical skill sets. Specifically, the operator noted it is aggressively seeking to fill specialized positions in software and analytics.
“Customers are willing to pay more for unique, value-added services [NetBond and Network on Demand], and are not expecting a discount.” — Randall Stephenson, AT&T chairman and CEO Typically, new services, such as NetBond or Network on Demand, tend to cannibalize legacy services, which tend to have more attractive margin profiles.
However, AT&T noted its new offerings are not only getting fast market traction, but they are also being viewed by customers as unique, value-added services and they are willing to pay more for new services such as NetBond and Network on Demand. In addition, AT&T is able to reduce its costs with these solutions by leveraging software-defined technologies. AT&T noted its Network on Demand service has over 200 customers worldwide, a substantial feat given the service launched just over one year ago.
“AT&T is not chasing the cloud.” — John Stankey, CEO, AT&T Entertainment and Internet Services
AT&T views cloud as one of the telecom market’s greatest opportunities since mobility, but the company is being tactical in how it approaches the cloud space. AT&T does not want to be in the commodity cloud business, an area dominated by AWS, Microsoft and Google. Rather, AT&T wants to leverage the cloud to enhance and provide flexibility to its solutions as well as reduce its internal cost structure. AT&T is focused on premium service offers in the cloud and aims to be a platform provider (via NetBond) to capitalize on opportunities in the space. AT&T also views the cloud as accelerating service innovation, which means hastening the pace in which it can bring new services to market with global reach.
“AT&T is viewed as a trusted adviser.” — Ralph de la Vega, president and CEO, AT&T Mobile & Business Solutions
AT&T noted conversations with its enterprise customers are changing. Whereas in the past new products drove new asks, AT&T is now increasingly collaborating with its customers and emphasizing solutions that have communications as a component of a broader offer to address customers’ needs. AT&T is also being more consultative in its engagements and is acting more like a thought leader on how to leverage ICT technologies, such as IoT and cloud, to achieve business outcomes.
“AT&T doesn’t want to be in the telecom business.” — Ralph de la Vega, president and CEO, AT&T Mobile & Business Solutions
AT&T is an innovative company that is not satisfied with maintaining its presence as one of the leading telecom operators in the U.S. market. The operator set goals extending far beyond the traditional telecom business, where some of its competitors including T-Mobile and Sprint reside. AT&T does not want to be confined to communications, the company is more than that, and aims to be viewed as a “scaled, integrated operator” rather than just a communications giant.
AT&T wants to leverage connectivity and the network it heavily invested in to offer a variety of solutions, not just disparate services. While connectivity will remain foundational to the company’s business, AT&T is starting to view itself as more than just a connectivity provider. It is also viewing itself as a consultant and enabler of platforms and solutions that can help its customers leverage the network and other technologies to obtain business outcomes. Its IoT applications and cloud platform are two examples of how the company is thinking beyond mere connectivity.
“We [AT&T] are moving from a specialized hardware company to a flexible software company.”
— John Donovan, senior executive vice president, AT&T Technology and Operations
AT&T believes it has found a solution to help its network keep up with Moore’s Law as well as help the company retain a sustained competitive advantage over peers. The solution is software-defined architectures. AT&T has a well-thought-out plan of attack and is moving ahead in its migration to SDN. Spearheaded by John Donovan and his team of network architects,
AT&T understands that it must transition from a specialized hardware company to a flexible software company and that this change must permeate the company’s culture. AT&T believes strongly that its evolution to a software-defined architecture will enable it to fundamentally change the economics of carrying packets, which plays into its core foundational value proposition of being a connectivity provider with a low marginal cost structure.
“Mexico is not a sideshow.” — Randall Stephenson, AT&T chairman and CEO
AT&T sought to quell confusion over its international strategy and provide color on how its entrance into Mexico fits into its broader corporate strategy. AT&T entered Mexico via acquisition following changes to the Mexican constitution that made it attractive for nonincumbent operators in the country to have a competitive advantage over incumbent operator America Movil, which has a near monopoly on the Mexican market.
AT&T views Mexico as a key long-term growth platform that will enable it to secure a stronger foothold in the U.S. Latino market, which numbers in the tens of millions of people, as well as provide it opportunities to grow its nondomestic sub- base. To succeed, AT&T works aggressively to roll out LTE across Mexico and plans to bring the technology to 100 million POPs in the country (or 80% of the Mexican population) by the end of 2018. With only 8% market share in Mexico through its acquisitions of Iusacell and Nextel Mexico, and most of those 8 million subscribers using feature phones on 2G, AT&T has a golden opportunity to not only take market share from America Movil, but also to spearhead the migration to LTE, which promises higher ARPUs.
Conclusion
AT&T appears to be taking a substantial lead over its closest competitors. The company’s aggressive timetable for transforming into a software-defined operator, coupled with its evolving approach to new business opportunities (i.e., more consultative and solutions oriented) position the operator favorably to outperform the broader telecom market. Still, being an early adopter of new technologies and changing how it goes to market means the company will have to work through challenges, both foreseen and unforeseen, but TBR believes the operator will maintain a solid time-to-market advantage over the competition in key areas, particularly SDN, cloud, Connected Car and network security, among others.
