The largest carriers in the US are collectively investing billions in enterprise network and service upgrades, but they are committing far more dollars to consumer and wireless services. One look at revenue potential and it becomes clear why - the carriers stand to gain billions in new business as initiatives such as IPTV take hold.
But industry watchers are left to wonder: Are business customers getting short-changed?
While capital expenditures have increased at AT&T and Verizon Business, the two carriers are spending a disproportionate amount of money building out consumer-oriented services such as IPTV and related fibre-to-the-premises initiatives such as Verizon's FiOS, says Lisa Pierce, a vice president at Forrester Research.
"My theory is that the two big providers are pouring most of capex into IPTV infrastructure, and that enterprise services innovation is suffering as a result," Pierce says.
For example, AT&T has plans to allocate roughly $US17.9 billion to capital expenditures this year, according to research firm Infonetics. That's about $US1.1 billion more than 2006 figures, says Stephane Teral, a principal analyst at Infonetics.
Of that $US17.9 billion, $US750 million is earmarked for enterprise service enhancements.
"We are targeting two areas for investment: our [service] portfolio and our global network reach and capabilities" for multinational customers, says Bill Archer, senior vice president of product management at AT&T. He says with this year's investment the carrier is expanding its managed hosting and managed security services, just to name a few target areas.
"Over two years [2006 and 2007] we will have invested over $US1 billion in our portfolio and network for enterprise customers," Archer says. "Satisfying the global requirements of multinational customers is a strategic priority."
But despite its two-year, $US1 billion investment, AT&T's enterprise spending is still low, Pierce maintains. "AT&T is proportionately under-investing in enterprise landline operations and over-investing in consumer landline," she says.
Verizon, meanwhile, is expected to allocate $US17.7 billion to capital expenditures in 2007, an increase from $US600 million from 2006 figures, Teral says.
The carrier has not stated how much it will spend on enterprise operations; however, Infonetics estimates it will spend $US10.7 billion to $US10.9 billion on landline networks this year.
At Verizon, landline networks include enterprise data networks, IP networks and all voice networks. The $US10 billion figure includes fibre deployments and equipment enhancements as well as any service developments and deployments.
"It's not clear how much of the $US10 billion landline capex figure is enterprise focused," Pierce says. "I would guess not much."
The third of the big three carriers, Sprint Nextel, bears the distinction of being the only one to reduce spending on landline networks.
Sprint's capex for 2007 is $US8 billion, which represents an increase of $US1 billion from 2006, Teral says. But the carrier is expected to spend $US600 million on its long-distance networks this year, a decrease from $US800 million last year. Long-distance networks primarily include Sprint's IP and MPLS networks and services.
The big winners at Sprint will be wireless networks and services. Investments in these areas will consume the lion's share as much as $US7 billion - of Sprint Nextel's $US8 billion capex budget.
Where the money is
Not surprisingly, there's a fiscal reason for the carriers' consumer focus.
"If you look at what [the carriers] expect to make on each subscriber to video services, and multiply that by the sheer volume of potential subscribers, it's staggering," says Jeff Heynen, directing analyst at Infonetics.
Heynen says the notion that carriers are under-investing in enterprise services and over-investing in consumer services is "fairly accurate currently" - but understandable.
Verizon could garner IPTV revenues of $US4.4 billion to $US6.6 billion annually once its fibre-to-the-curb FiOS deployment - which is expected to reach 22 million homes over five years - is complete.
Infonetics projects that by 2009, annual revenue per IPTV user on average will be "just a little over $US1000", Heynen says. Conservative penetration rates range from 20 percent to 30 percent, according to Heynen, which translates into 4.4 million to 6.6 million customers - and billions in new revenue - for Verizon.
What the carriers say
Inside the carriers, executives say their spending plans aren't shortchanging anyone.
John Doherty, vice president of strategy and finance at Verizon Business, defends his company's spending position - though he wouldn't share more detail about what the carrier will spend on enterprise services and networks this year.
"We feel very, very comfortable with Verizon's comprehensive capex review program," Doherty says.
Verizon is spending more on wireless and consumer because it is building capacity and developing new services such as VoIP, which "at one point in time will be the only way voice services are delivered", Doherty says.
He also says one of the reasons Verizon acquired MCI was because it was so far along with its IP network and service deployments. "We continue to spend capex on integration. Part of that is moving from 30 billing systems to four," he says.
In addition, Verizon is moving toward a single stack, a set of systems that allow [Verizon] to provision across all networks as if we have one single stack of systems, Doherty says.
Other network-related projects on tap for 2007 include IP network consolidation, support for 100Gbps wavelengths and plans to have 60 percent of its ultra-long-haul optical network built out this year.
For its part, Sprint Nextel insists investments in wireless networks and services aren't solely consumer-oriented.
Wireless and business service investments at Sprint aren't separate, says Barry Tishgart, vice president of converged business solutions at the carrier. "We're investing in convergence."
"Investments in wireless can be looked at as access investments" for business services like VPN, Tishgart says. "And investments in [IP Multimedia Subsystem] will have immediate and future benefits for business customers."
Greenfield investments require more capital than people, process and system investments that make existing services better, Tishgart says.
Greenfield investments for Sprint include the company's ongoing wireless data upgrades and its WiMAX 4G network deployment.
Sprint's WiMax venture will cost the carrier billions, but it's a necessary investment if it has any chance of reaping the benefits of being the first national carrier to support 4G WiMAX services. Tishgart points out that the majority of Sprint's WiMAX spending will happen in 2008, but the company is starting investments this year.
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