As AT&T, Verizon Detail Cost-Cutting Measures, Partners See Opportunity

Efforts by AT&T and Verizon to reduce costs in business wireline present challenges and opportunities for channel partners.

The two rival incumbent local exchange carriers (ILECs) announced their quarterly results this week, once again highlighting the pressures telecommunications providers face finding margin on wireline services. AT&T on Wednesday said its business wireline revenues declined 5.6%, to $5.3 billion, in the second quarter, citing “lower demand for legacy voice and data services and product simplification.” Similarly, Verizon on Tuesday reported a business segment EBITDA of $1.6 billion, representing a 6.5%, citing “continued declines in high margin wireline revenues.”

AT&T and Verizon both have publicly stated their desire to rationalize their legacy wireline product portfolios. And cost-saving efforts continue to take place on a personnel level both in business wireline units and across the board.

AT&T CEO John Stankey said his company’s “cost savings initiative” has helped it meet its $6 billion run rate savings target that it launched in 2020.

“And we believe there is significant opportunity to build on this momentum with another $2 billion-plus over the next three years,” Stankey said in an earnings call on Tuesday. “After a period of reinvestment, this work has been the foundation for our recent margin improvements.”

Verizon stated that it trimmed its workforce in the second quarter with cuts to its Global Services group. The company has also shifted its real estate investment and evaluated its supply chain. In addition, “leveraging artificial intelligence” has led to savings, according to Verizon Communications executive vice president and chief financial officer Anthony Skiadas.

“We are on track to deliver $200 million-$300 million of savings this year from our transformation efforts and continue to make progress towards achieving our goal of $2 billion to $3 billion of annual cost savings by 2025,” Skiadas told analysts in a call Tuesday.

Overall AT&T revenues grew almost 1%, to $29.9 billion, and overall Verizon revenues fell 3.5%, to $32.6 billion.

Quarterly Earnings

AT&T and Verizon did out several bright spots in their second quarter results. For example, both providers celebrated their gains in consumer wireless. Total wireless service revenue for Verizon grew 3.8% year-over-year to $19.1 billion, and total wireless service revenue grew 4.9% for AT&T, to $15.7 billion. Total Verizon business broadband connections went up by nearly 69%, with fixed wireless access (FWA) increasing from 316,000 connections a year ago to 870,000. And AT&T’s consumer wireline business revenues grew 2.4% to $3.3 billion. Moreover, AT&T broadband revenues 7%, with fiber growth playing a big role.

But overall business wireline businesses, to which which agent and reseller partners pay close attention, are facing pressures. While AT&T said fiber revenues grew at 28%, non-fiber revenues declined 13.7%. While fixed wireless access (FWA) again helped propel Verizon’s overall broadband additions, wireline broadband connections declined 2.1 percent. AT&T reported a business wireline operating income was $396 million, representing a year-over-year decrease of 19.2%.

Verizon reports its business wireline and business wireline numbers in the same category. Overall business revenues decreased 1.9% year-over-year, with wholesale declining the most (6.2%). Enterprise and public sector declined 2.1% to $3.8 billion. Verizon’s “business markets and other category,” which includes SMB, stayed fairly similar, with a .7% decrease to $3.1 billion. Operating income for Verizon’s business unit decreased by 21%.

In the meantime, Comcast Business on Thursday shared its earnings. The cableco’s revenue for business services connectivity grew 4% year-over-year Its costs associated with business services connectivity increased 3.1%. Business services connectivity adjusted EBITDA of $1.32 billion slipped slightly from the previous quarter but grew 4.7% year-over-year. Comcast reported 2.6 million business customer relationships in the quarter, a net addition of 5,000 over the previous quarter.

Above: Comcast’s Craig Schlagbaum joins the Coffee with Craig and James podcast.

Cuts to Wireline Support

AT&T cut its business wireline expenses by 4.3% down to $4.9 billion in Q2. The company cited “lower wholesale network access costs, one-time cost benefits and lower marketing expenses.”

Expenses for AT&T’s business wireline operations and support decreased 6.4% year-over-year. And that number fits with anecdotes channel partners have shared about their experiences engaging with account managers from vendors across the telecommunications landscape.

For example, Profit Advisory Group president Barry Bazen he said he recently learned that an account rep from one of its ILEC partners will be leaving the account on Sept. 1. Bazen said he is seeing many carriers focus their personnel investments on either …  … large enterprise deals or mobility-focused deals.

“You have accounts that are spending a million dollars a year with these providers. And when we call in, we always ask if there’s a dedicated account rep. And it is more the norm that a million-dollar-a-year customer does not have a dedicated account rep,” Bazen told Channel Futures. “So for anything they need, it’s 1-800-Dial-A-Prayer.”

Kairos Data Communications chief revenue officer Lucas Salvage said he has observed gaps in support and services opening with certain vendors.

“I’ve seen some of the Big 5 or 6 starting to really push back on a lot of the things that I think we partners were accustomed to in terms of delivering services to customers at what I would call a normal price point. I’ve seen project management resources shrivel up,” said Salvage, who added that the trends includes some of the large UCaaS and CCaaS providers.

Vendor layoffs have been a huge theme in 2023, as many technology companies hit a major reset following a pandemic-related expansions. Bazen echoed a sentiment that Channel Futures has heard from other sources this year – that channel partners stand to play a bigger role as suppliers reduce staff.

“I think that’s all going to equate to more and more opportunities for channel to step into that void and service those customers. They’ve got to get service from somewhere,” he said.

However, stepping into that void will require partners to make personnel investments of their own, Bazen said. For example, recent anecdotes from technology advisor firms showed that many partners adding people in operations and post-sales support.

“I think for the smarter guys and girls, that’s exactly what they’re doing. The smart money is to beef up your infrastructure, so you can have account management and retain these customers, because they’re simply not going to be able to get that service unless they’re truly enterprise level,” Bazen said.

Vendor Impact

Bazen said that smaller suppliers who put increased focused on their partner and customer support teams could stand to benefit. In particular, aggregators pose a challenge to the ILECs.

Bazen said one customer is nearing the end of a six-year contract with an ILEC for MPLS and dedicated internet access (DIA) totaling $120,000 per month. Profit Advisory Group took quotes from several carriers, including ILECs and aggregators. The current ILEC provider offered a quote that brought the price down to $90,000 per month. However, quotes from the aggregators reduced the mid-50’s or low 60’s for the same network design, Bazen said.

“I think that because of the lack of [ILEC] staff, both customer-facing and customer-supporting, the opportunity for the aggregators is ripe. Because they can use the channel partners as the customer-facing and supporting. All they’ve got to do is do great on service delivery and issue resolution,” he told Channel Futures .”And their numbers are exploding.”

Lead Cables

Headlines about slumping revenues for legacy copper-based wireline services have grown remarkably common. Facilities-based providers in 2023 have intensified their migration from copper to fiber- and wireless-based connectivity. Skyrocketing prices for POTS and TDM lines have demonstrated the challenge ILECs feel to make margin on legacy services that the FCC historically required them to provide. The services are growing increasingly expensive and counterintuitive for these providers to maintain.

“They are kind of over a barrel,” one analyst told Channel Futures earlier this year.

Now a recent Wall Street Journal report on the environmental impact of lead-sheathed copper cables has once again brought copper pain points into the lime light. Underwater and over-water cables, many of which the original AT&T monopoly installed more than a century ago, have degraded lead into water near residential spaces. The carriers have disputed the tests the Journal conducted, saying that their own tests did not reveal dangerous lead levels.

Stankey said in Wednesday’s AT&T earnings call that his company wishes to work hand-in-hand with the Environmental Protection Agency (EPA) and “industry partners” to review next steps for the cables.

“Independent experts and long-standing science have given us no reason to believe these cables pose a public health risk. And our own prior testing, which we shared publicly, confirms the established science,” he said. “Still, to be responsive to any concerns raised by recent reporting, we’re doing additional testing at selected sites.”

An analyst on the Verizon call asked Verizon CEO Hans Vestberg if the hubbub around the report will accelerate copper retirement. Vestberg said the company continues to follow its “rolling process” for closing different facilities.

“We have always a plan for network transformation that we continue [sic.]. That has not changed,” Vestberg said.