Speaking in a seminar sponsored by the National Cable TV Center in association with the NCTA convention in Chicago on Sunday, AT&T Broadband chairman Dan Somers expressed annoyance at critics of his 18 months as head of the division and the "relentless" speculation about him personally.
"Is he here? Is he not? Is he gone? Is he going?" Somers said. He pointed to "all the the articles written last fall that I was going to be gone in 60 days. I'm still here, in Chicago, overseeing AT&T Broadband.
Somers said that concerns about the unit's profitability are overblown. "We're just [seeing] the benefits of consoldiation," he said.
He noted that in metro Chicago, AT&T has amassed a footprint that encompasses virtually every cable system, an operation serving 1.9 million customers and passing 3.5 million homes. But that has required absorbing the operations of four other MSOs, the largest of which came when AT&T bought MediaOne last year.
Industry executives have expressed astonishment at the decline of AT&T's operating performance.
Immediately after AT&T acquired Tele-Communications Inc. two years ago, cash-flow margins started sliding from around 43% into the high 20s. AT&T has been promising a rebound, but during the first quarter, the cable unit posted a margin of just 16%. Most other operators generate margins around 40%-50%.
The outsiders' misconception, he said, "is when you do this, you get the synergies immediately," Somers said. It takes time to mesh the cultures and operating styles of the various owners of the acquired systems and physically interlink the systems. In metro Chicago, for example, AT&T has collapsed 16 headends into just two serving the entire region.
Somers said that the "greatest myth" about the company's new product efforts is that circuit-switched telephone service over cable "is not profitable.... We know how to do it. We have the brand. Why wouldnt we do it?"
He contended that the company has succeeded in its mission to "create the largest hybrid -fiber coax telphony-based company in the world." (With just 700,000 subscribers, that's not a massive boast.) AT&T pursued the plant "because, in the long term, [it's] a very profitable business. It's a skill set we know," and AT&T has a strong brand.
Somers said other operators are making a mistake by holding off from launching conventional circuit-switched telephone service to see how theoretically cheaper Internet protocol telephony can be. Circuit-switched requires $300-$500 more hardware per subscriber than IP telephone theoretically will.
But Somers said that IP telephone will not smoothly offer features like voice mail, call waiting, etc. Hence, it's not a mass telephone product.
If the technology does develop, "We'll do the migration, but by then we'll have lots of expertise and three years of customers paying us $50 month.". - John Higgins