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Summary:

Pair-bonding for faster DSL, 3G wireless, and a beefier backbone using OC-768 (40 gigabits per second) technology are some of the things in the immediate future for AT&T (T), the San Antonio, Texas-based phone company, according to CEO Randall Stephenson, who was in San Francisco last […]

Pair-bonding for faster DSL, 3G wireless, and a beefier backbone using OC-768 (40 gigabits per second) technology are some of the things in the immediate future for AT&T (T), the San Antonio, Texas-based phone company, according to CEO Randall Stephenson, who was in San Francisco last week for the Web 2.0 Summit.

Looking fit as a fiddle and sporting a Texas Tan, Stephenson had just come off the stage after charming the skeptical audience and skillfully dodging some of the prickly questions he was asked by John Battelle. In a quick private chat following his on-stage conversation, Stephenson soldiered on with his charm offensive, and outlined a vision for transforming the phone company into a communications company with an emphasis on broadband and wireless.

The New Network

I started off by asking him when AT&T will boost speeds on its DSL connections and give us at least a semblance of what is considered broadband in other parts of the world. He pointed out that while I might be buying a faster connection, it is unlikely that I’ll get anywhere close to it. “We constantly test throughputs on all other networks and from our tests, median throughput is around 256 kilobits per second,” he said.

The problem lies in the infrastructure used to deliver the content — from the data center gear to the networks that bits have to traverse. AT&T, he said, is building an OC-768-based nationwide IP backbone “that will address the issues of speed and latency and bring content to you faster speeds.” Of course, it means serving your content from AT&T data centers via AT&T pipes.

Google (GOOG), Stephenson pointed out, has put its data centers close to the end customer, allowing it to offer a superior experience; AT&T’s new wholesale content division, he said, will offer the same “closeness.”
Not that they are having any trouble selling. The company, he said, is experiencing strong demand for its bandwidth-related services, largely due to a boom in video-related activity.

AT&T is investing heavily in its network infrastructure primarily because the demand for bandwidth keeps increasing. “The early buyers are your big dogs like YouTube,” he said. The consumer traffic (driven by DSL) is up 40 percent per annum, while the boom in wireless broadband has sent the amount of bits being pushed up by a factor of four. Business-related traffic, he said, is up 60 percent or so over the past year.

The U-Verse Factor

The conversation then shifted to U-verse, and why AT&T was not pursuing an all-fiber strategy. Stephenson did an admirable job of defending his belief that his company’s U-verse (fiber to the curb + DSL) strategy was better than the all-fiber strategy adopted by Verizon (VZ). U-Verse is AT&T’s IPTV service, which is being slowly rolled out in different parts of the country and at present has over 100,000 subscribers. Getting U-verse service status to the mass-deployed level will take between three and four years.

AT&T’s IP-based video system is superior, he argued, because it’s able to send only the HD video channel that a subscriber has asked for, while other service providers are forced to pump out HD channels constantly.

“It’s not the question of fiber or copper,” he said. “What happens when you have to send 100 HD channels? The fiber capacity will get used up pretty quickly.” AT&T sends one channel that currently uses up 6 megabits per second.

“Pair-bonding is coming next year,” he said, which will allow AT&T to send out more than one HD stream at a time. (Some have forecasted that within five years, we will have 3 HD and 2 SD streams coming into our homes.) Pair-bonding, which will use gear from Alcatel-Lucent (ALA), will allow AT&T to connect homes to the fiber nodes at over 40 megabits per second. This is not the first time AT&T has brought up pair-bonding as a solution. (Related: Our post on pair-bonding.)

The 3G iPhone

As my allotted 15 minutes were winding down, I asked Stephenson why AT&T introduced the slow EDGE network for the iPhone, which is one of the reasons I am not using it any more. “Steve [Jobs] wanted to have ubiquitous coverage for the iPhone, and you have to remember it was two years ago when 3G networks were not everywhere,” Stephenson said. So they went with the slower EDGE network. So does that mean there will be a 3G iPhone soon? “Yes, there will be a 3G device,” is all he would say.

“As a consumer device, it has met all expectations, and for me personally it has changed how I travel,” Stephenson said of the iPhone. Two of his favorite iPhone activities, he said, are catching up on news via the use of hotel Wi-Fi connections, and watching “24.” He also uses the device to check his personal email, though not his email for work.

“From a business perspective, iPhone has brought in a lot of traffic to our stores and helped with the brand transition (from Cingular to AT&T),” Stephenson said. “So I am satisfied.”

Photo Courtesy: ZDNet/Dan Farber

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By Om Malik

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  1. AT&T is going to stick it Vonage just like this… ya know what I;m talking ’bout?

  2. Om, if you stop using the iPhone as your main phone, what device are you embracing these days? A N95?

  3. Putting DSL or U-Verse on copper is like putting a vinyl top on a stagecoach in the era of the Space Shuttle. It’s still OLD technology and cannot be sold to those of us that know better.

    AT&T is creating a competitive disadvantage for this country by trying to defend its obsolete business model instead of upgrading the infrastructure to fiber (Verizon has got it right)

    Any stock analyst or other pseudo-expert that thinks AT&T is on the right track has probably invested heavily in foreign markets and companies. This obsolete network infrastructure will not provide a platform for global competitiveness.

    6Mbps? 100Mbps? Right now they should be planning upgrades to 1Gbps universally, not U-Verse’s 6Mbps. As for their 40Gbps that’s good and it better be available to businesses everywhere, not in just a few select sites.

    Where did all the engineering know-how go at AT&T? Oh yeah..check the tanning salons.

  4. The 3G comments from T are bunk!

    Check the previous news articles…AT&T is covers about 150M people…whereas Sprint is well over 220M people and covers many more sq miles. AND, 3G is backwards compatible to EDGE…So, if you aren’t in a 3G network, you will get EDGE…You will always be connected and can make voice calls.

    The real reason why the iphone launched with edge is that a 3G chipset costs significantly more in bill of materials than a edge phone…And since the device is unsubsidized, very few subscribers would pay + $900 for a iphone at launch. And, in a unsubsidized world, cost of the device is very important to achieveing the returns your typically want from other similiar products (iPODs with Gross margins above 50%).

    Anyhow, good coverage OM.

  5. Nice interview Om.

  6. Brian,

    Actually, “3G” (which in AT&T’s case means UMTS/HSDPA over W-CDMA) is not backwards compatible with EDGE (which is a GSM/2G technology). Rather, it requires new hardware both in the device (your cell phone) and in cell towers, which is why it is significantly more expensive to roll out compared to EDGE, which was simply a software upgrade on existing GSM/GPRS hardware. (Interestingly enough, the GSMA “3G” technology used by AT&T and internationally is technically closer to CDMA, the 2G technology in use by Verizon, Sprint, NexTel, AllTel, etc.)

    This means that even though European carriers largely went straight from GPRS to 3G (UMTS/HSDPA/W-CDMA), and for the most part do not support EDGE, doing so was relatively cheap for those “lucky” ones that got selected as the iPhone partner by Apple (O2, Orange, T-Mobile). They simply had to do a software upgrade on their existing cell tower infrastructure.

    You also say that the iPhone is unsubsidized. Not so. AT&T pays Apple 10% of their revenues (not even net profits) from iPhone subscribers for the duration of their contract. O2 (in the UK) coughs up 40% of their revenue. And because the iPhone is not available unlocked (yet), the there is not really any “unsubsidized” price to compare against (this will change with the French release in December, where it will be available unlocked, albeit for a higher price).

    Finally, 3G hardware is not as expensive as you indicate. For instance, an unbranded, unlocked OEM version of the Motorola RAZR v3xx (which has a W-CDMA chipset capable of both 850/1900 MHz for North America and 2100 MHz for Europe/Asia) can be had for $279 or so on the Motorola site — not significantly more than any non-3G version of the RAZR. Steve’s beef with 3G was merely that the existing chipsets drain too much power out of the battery, which of course is not all that great in the iPhone. (Also, I think that given his marketing savvy, he probably figures that if the iPhone DID support 3G, people living where 3G is not available would feel that they did not get their money’s worth in buying one. Smart guy, this way…)

  7. Is anyone aware that ATT has created utter chaos on its Worldnet ISP by implementing “new and exciting” features and changes to existing features early Sunday morning, 10/21/07

    I’m not talking about a few problems here or there.

    I’m talking about major problems everywhere.

    Email was lost, email is being bounced when it should not be,. Pages don’t work or load properly – the list of bugs and mistakes is a very long one.

    Go to the ATT newsgroups, a list is at http://help.att.net/care/index/newsgroups_list.html?platform=none

    Look all of the newsgroups and you’ll see hundreds of messages from customers about the disaster ATT created when they implemented their changes.

  8. I think it stinks when your are told by an at&t tach when signing up for dsl service that the price for internet will be $19.99 a month as long as you have the service and then 8 months later the price gos to $25.00 so what the tech’s can just lye to us now and get away with it what a bunch of crap.

  9. No Bonus, No Salary Increase for AT&T CEO Monday, February 2, 2009

    [...] and has announced that it will cut 4 percent — 12,000 jobs — of its workforce. (My post after a conversation with Randall last year.) (Photo Courtesy ZDNet/Dan Farber) [...]

  10. AT&T is laying off people, but ask them how much they are going to spend on their CEO trip to Cabo San Lucas in March? Ask them why favorites go and real qualified employees are overlooked?

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