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AT&T chief: Net neutrality uncertainty puts a pause in investing
C|NET ^ | November 12, 2014 | Roger Cheng
Posted on 11/12/2014 11:17:50 AM by walford
AT&T CEO Randall Stephenson warned that he will hold off on many of his company's capital investment plans if uncertainty persists over how the US government will regulate the Internet.
"It's prudent to pause," he said at an investor conference Wednesday. "We want to make sure we have line of sight on this process and where these rules could land, and then re-evaluate."
The comments come two days after President Obama threw his support behind the idea that broadband services providers should be regulated under Title II of the Telecommunications Act, which would treat Internet service providers more like utilities and would give the government more say over how much they can charge customers.
Obama's Monday announcement, addressed to the Federal Communications Commission, set off a flurry of responses. Broadband companies such as AT&T, Verizon and Comcast warned that the regulations would be onerous and would curtail investment and innovation. Consumer advocacy groups and Internet companies lauded the move, saying it was the only way to ensure Net neutrality, or the concept that all Web traffic is treated equally.
FCC Chairman Tom Wheeler said later on Monday that all options are on the table. Wheeler is reportedly looking at a middle-ground approach that would merge some Obama's proposals while addressing concerns from the Internet service providers.
While Stephenson said Obama's proposal provides clarity on his expectations for how the Internet should be regulated, he warned that the process of changing the rules to put broadband under Title II could take two to three years at worst, and a year at best. He also said that any such proposal would face legal challenges.
While this happens, capital investments could be curtailed, Stephenson said. AT&T last week said it expects to invest $18 billion in its network next year, but added that the number could drop if the uncertainty persists. Specifically, the company's goal of bringing faster fiber-optic lines into new cities could be put on hold until it gets more clarity on any potential Internet regulations.
AT&T had planned to invest in bringing its GigaPower 1-gigabit broadband service -- a competitor to Google's own super-fast Google Fiber service -- into 100 cities next year.
"We can't go out and invest that kind of network without knowing the rules governing the network," he said.
An area where Stephenson said he is making a bigger bet is in Mexico. The company said Friday that it plans to spend $2.5 billion to acquire Mexican carrier Iusacell.
Mexico has recently changed its telecommunications rules to enable more foreign investment, and Stephenson said he was impressed with how attractive it has become. The country has a growing middle class, a young population, and a vibrant economy, he said, adding that he wants to get in there ahead of the looming mobile Internet revolution.
"It'll be a terrific growth opportunity," he said.
He envisions a consistent network experience across the US and Mexico, which would give it a geographical edge over its rivals. In particular, he noted that AT&T's prepaid wireless business, Cricket, has a proportionately high number of Latino customers, which would work well with its pending Iusacell acquisition.
AT&T's other large deal is the pending $48.5 billion acquisition of DirecTV. Stephenson acknowledged that with 6 million U-Verse TV customers, its television business lacked the scale to make money, with most of the costs sunk on paying for the content itself.
DirecTV brings in 20.3 million customers, giving it the scale to profitably run a television business and negotiate for additional content rights on mobile, which Stephenson said would be a priority once the deal closes, expected some time next year.
Stephenson also talked about the "hypercompetitive" environment on wireless, boasting that it was willing to defend the "premiere smartphone customer base we have built."
AT&T has found itself drawn into a price-and-data war largely spurred on by T-Mobile and Sprint, which have thrown out an increasing number of discounts and additional data packages in an effort to take market share.
Even as AT&T's capital expenditure total drops off -- its 2015 target is $3 billion lower than this year -- Stephenson said the network remains a priority.
"We won't compromise on best-in-class network performance," he said.
