More Expensive than Hurricanes

Having lavished some ink on Cox today it only seems fair to give a little attention to AT&T, Lafayette’s other incumbent friend in this digtial age.

An article in Multichannel News reports on AT&T’s slowdown in builidng out its “fiber to the node” network. FTTN is the half-measure that was supposed to be the less costly but adequate reply to Verizon’s more capable fiber to the home rebuilding program.

AT&T’s strategy isn’t working and it is scaling back its investment:

AT&T tacked on 264,000 U-verse TV subscribers in the fourth quarter of 2008, but video and other growth areas were more than offset by dropping wireline voice connections, and the telco also said it would scale back capital spending on building out the U-verse network.

That’s really no surprise and the scuttlebut about U-verse pullbacks has been going on all year. But what really caught my eye was the following:

the telco said costs associated with subsidizing sales of the popular iPhones reduced pretax fourth-quarter earnings by approximately $450 million. Costs related to hurricanes, by comparison, reduced pretax earnings by approximately $120 million.

Really!? In a year that boasted major storms Fay, Gustav, and Ike making landfall in its territory the iPhone ate into its (still substantial) profits more than hurricanes? I bet the denizens of Houston, Lake Charles and Baton Rouge are going to be surprised. Especially as the people of the gulf coast states shoulder the burden of making up those “losses” for AT&T. There’s a grim oblique humor in this sort of thing that the residents of Louisiana south of the interstate have grown to savor. (The iPhone has earlier been lauded in these pages a great NAD and digital divide device…)

Still, hasn’t the iPhone been a great thing for AT&T? If my life is any indication it has been…I was at one of those geeky/food/socials for an out of town tech maven that seem to be a Lafayette trademark on Sunday and once people started calling around for early-season crawfish the woman at the end of the table looked around and remarked that 7 of the 8 attendees had pulled out iPhones. Even six months ago there’d have been a healthy mix of Blackberries and CE machines in the mix. No longer. And apparently that’s not far out the ordinary:

AT&T hung its subscriber numbers on the board this morning: 2.1 million Net Gain in Wireless Subscribers in the fourth quarter and…1.9 million Apple iPhone 3G activations.

That’s worth pausing a moment to consider one more time: 1.9 million Apple iPhone 3G activations – in the fourth quarter alone…

The iPhone was a rival killer – About 40 percent of the customers carrying the device that Steve Jobs built (so to speak) are new customers to AT&T. How many used to send their monthly bills to Sprint, Verizon or T-Mobile USA?

Even wth the estimated 325-425 dollar subsidy that AT&T apparently lays out that’s surely a good thing for the company.

In the long term.

And therein lies the irony for this resident of Lousiana’s flood plain who has been primed for a little grim humor by the earlier news about the iPhone being more expensive for AT&T than our hurricanes. You see, what AT&T is doing is smart, modestly daring business: it is spending money upfront on the promise of getting all those high-margin, big-spending iphone customers for the long time. But it is, almost certainly, losing serious money on the front side and cross-subsidizing this venture with revenue from other aspects of its far-flung empire.

AT&T in its earlier guise as BellSouth was responsible for writing the law that denies Lafayette’s local utility, LUS, the ability to make a similar smart decision to bear upfront losses for long-term gains. There was a lot of preening and huffing and puffing about “cross-subsidization” by AT&T lobbyists and regional vice presidents as if that were some sort of bad thing. As if the money that AT&T realized from its monopoly on landline telephones hadn’t cross-subsidized its move into the expensive wireless regime that now is its the engine of its growth.

It’s darkly funny. I guess.