AT&T Business Wireline cushions legacy drag with cost reductions

AT&T Business Wireline smooths out legacy wireline revenue pressure.
The service provider continues to improve the business with cost reduction measures.
AT&T will take money it saves to reinvest in fiber-based initiatives for business customers.

AT&T Business Wireline continues to face the ongoing reality that legacy copper-based services, which were once a bellwether of revenue, remain a hurdle. It continues to look for ways to overcome this as more customers transition to next-generation fiber services, such as cloud and Ethernet.

Speaking to investors during its second-quarter earnings call, Pascal Desroches, CFO of AT&T, stated that the company is working to offset declines as it cuts costs and addresses declines in legacy issues.

“In Business Wireline, we are outperforming our initial outlook midway through the year, thanks to slightly less legacy wireline pressure than expected and solid execution of cost-takeout initiatives,” he said.

Cost cutting benefits

AT&T is seeing the benefits of lowering costs in its Business Wireline segment.

The company’s Business Wireline operating and support costs decreased by nearly $275 million year-over-year, primarily due to lower costs and contractor expenses.

Operating expenses decreased by 3.0% year over year, primarily due to lower personnel and customer support costs associated with ongoing transformation initiatives, partially offset by higher depreciation expenses resulting from ongoing investments in strategic initiatives, such as fiber.

Desroches said that these actions will enable it to emphasize its fiber-based service set.

“We expect to reinvest some of these savings in the third quarter to drive future growth in fiber and advanced connectivity revenues,” he said. “While this will put some incremental sequential pressure on third-quarter EBITDA, we now expect full-year Business Wireline EBITDA to decline in the low double-digit range versus our initial outlook for mid-teens decline.”

Legacy drag continues

In the near term, AT&T’s legacy business continues to be a drag—a trend that persisted into the second quarter.

Second-quarter Business Wireline revenues declined 9.3% year-over-year, with Business Wireline EBITDA declining 11.3% to $4.13 billion. This decline was due to decreases in legacy and other transitional services of 17.3%, partially offset by growth in fiber and advanced connectivity services of 3.5%.

Likewise, AT&T Business Wireline operating income decreased by $201 million, compared to $102 million in the year-ago quarter.

“Business Wireline revenues declined year over year, driven by continued secular pressures on legacy and other transitional services that were partially offset by growth in fiber and advanced connectivity services,” AT&T said in its second quarter earnings release.

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Vertical Systems Group: Global carrier Ethernet market to reach $57B by 2029
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