AT&T says SD-WAN will help it stay competitive in the smaller business market

Being an advocate of SDN and NFV, it’s only a matter of time until AT&T has its own take on the emerging SD-WAN market, one that allows service providers to leverage software-defined capabilities and low-cost broadband to extend data and security services to multiple business sites.  

The service provider sees potential to retain and attract small to medium business (SMB) customers that are in danger of being poached by cable and CLECs. Randall Stephenson, CEO and chairman of AT&T, told investors during the company's first-quarter call that SD-WAN is a product it needs to have in its portfolio.

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“You should assume we’re developing [an SD-WAN] capability ourselves because we think it’s a viable offer down market,” Stephenson said. “We’re seeing some effect from it and while it’s not material yet, we need to have it.”

Multipronged solution

AT&T may not have released its own SD-WAN solution yet, but the service provider has already put plans in place that indicate its interest is real. In October 2016, AT&T revealed it was collaborating with SD-WAN vendor VeloCloud with the aim of releasing a solution sometime this year. AT&T’s SD-WAN product will let customers manage application performance and bandwidth by allowing them to set parameters for routing data traffic across different access types.

For VPN customers, AT&T says it can help manage multiple site types with different performance and bandwidth needs. And for customers with similarity across all sites, AT&T is touting its SD-WAN premises-based, over the top option, available later this year.

However, AT&T said that it will continue to market traditional MPLS-based VPN services to its large enterprise customer base. Being able to provide VPN capabilities along with Ethernet has been a key factor in how AT&T has retained its profile as one of the largest domestic U.S. and international Ethernet providers.

“Up market, the traditional VPN capability is going to be the enduring capability,” Stephenson said.

IP transition issues

SD-WAN may represent a future capability for AT&T’s business unit, particularly as a next-gen strategic service, but the telco continues to weather the storm of a challenging environment where businesses are not aggressively spending capital on business services.

John Stephens, CFO of AT&T, said interest in business services was not as strong as the company initially forecast.

“In the business segment, we saw weaker demand than we expected,” Stephens said. “U.S. business investment as percentage of gross domestic product (GDP) continues to be low.”

Stephens added that “growth expectations in the economy have been rising, but we have yet to see that translate into economic gains or demand.”

In business wireline, AT&T’s declines in legacy products were partially offset by continued growth in strategic business services. As seen in earlier quarters, business fixed investment and technology transitions also impacted wireline business results. Total business wireline revenues were $7.4 billion, down 7% year over year.

Per the industry-wide trend, growth in wireless service revenues and strategic business services helped offset declines in legacy wireline services and equipment sales and the second-quarter 2016 sale of certain hosting operations.

However, AT&T continues to also see growing revenue pains as business customers transition off of TDM and other legacy products to IP-based services like cloud and Ethernet.

“We also continue to see the impact of technology shifts away from the traditional voice lines and legacy services,” Stephens said. “Customers are still buying our strategic business services, which were up more than $200 million in the quarter.”

Despite the near-term economic issues, Steve Vachon, telecom analyst for Technology Business Research, said in a research note that AT&T’s business unit has potential upside for the service provider.

“As the consumer segment becomes more challenging due to market saturation and pricing pressures, TBR believes the greatest revenue growth opportunities for AT&T exist within the company’s Business Solutions segment,” Vachon said. “AT&T’s innovations in technologies including NFV/SDN, networking, security and cloud enable the carrier to create hybrid IT environments that can be tailored to better accommodate the unique needs of enterprises.”