The global telecom transition to HD voice and all-IP networks shrinks
the footprint of required network equipment by as much as 90 percent.
This liberation of floor space translate the $25 billion "buildings"
line item on AT&T's balance sheet into a $100 billion windfall.
Generally accepted accounting principles require listing real estate
at historic acquisition cost. AT&T's portfolio goes back more than
100 years even as commercial real estate appreciated five fold since
the 1970's. All-IP networks require both less equipment and far fewer
points of interconnection between networks. The transition of the
AT&T's core network to all-IP already started emptying buildings, but
most of the benefits await adoption of the IP-IP interconnects
necessary to support HD voice.
IP-IP interconnects allow AT&T to consolidate the vast majority of the
company's 5000 central offices into a handful of hub data centers.
Comcast's all-IP network supports 10 million Digital Voice customers
from five data centers. Legacy circuit switching preserves the
physical connections between end points except for multiplexing in the
core network. The copper loops linking premise to the central office
connect through a giant Master Distribution Frame and circuit switch
line cards. IP connections utilize logical address assignments, so a
single fiber can support any almost arbitrary number of end user
connections. Half a rack of VoIP network equipment replaces a room
full of Class 4 and 5 of circuit switching equipment. Equipment
sheds replace the contents of entire buildings.
AT&T proposed a date certain PSTN retirement in a FCC filing on
December 21, 2009. The filing and media coverage at the time focused
on the move from wireline to wireless networks as well as the
operational efficiencies of the converged all-IP network necessary to
support broadband. The all-IP network promises to dramatically reduce
the $3.5bn AT&T spends monthly to operate its network, but the cost of
new equipment and price competition prevent much of the benefit from
becoming profit. The bulk of the upside comes through divesting the
resulting real estate surplus or as much as $20 billion each year from
2013 to 2018. AT&T can even follow France Telecom's example and
accelerate the benefits through private equity deals.
The recoverable value of AT&T's real estate assets remains unknowable
with any precision, but the growth of telephone service during the
20th century leaves the company with real estate in prime locations
across America. SBC CEO Ed Whitacre rolled up half the assets of the
old AT&T and accumulated 250 million sq ft of floor space between
network facilities and office space or 1000 sq ft per employee.
There may also exist ways to generate cash by recycling the copper in
network elements or even outside plant. Pole space remains scarce, so
recovering copper in outside plant makes room for other uses of the
Embracing all-IP networks represents the only option allowing AT&T to
compete with over-the-top services even without the real estate
windfall. The main questions owe to the unwinding of the legacy
regulations necessary to retire circuit switched network elements.
The scale of the real estate divestiture challenge may justify
creating a separate business unit to deal with the all-IP network
transition. The complexity of the task and extracting the most value
out of liberated space will require careful planning. For the moment,
at least 90% of traffic still transits a circuit switch at some point
and circuit switching remains the baseline even for wireless network
The deployment of all-IP wireless 4G networks represents the final
piece of the puzzle making the all-IP transition inevitable. AT&T
already converted two million voice customers to all-IP Uverse voice
and large enterprises started embracing SIP VoIP infrastructure two
years ago. A push to reclaim spectrum provided much of the energy
driving the digital broadcasting and HDTV transition. A similar
dynamic around reclaiming real estate can fund the global transition
to HD voice and all-IP networks. The resulting transformation
promises to reset the entire telecom competitive landscape in AT&T's
So, raising their data plan rates by $5 is really small potatoes by comparison. <(^B)<