Andre Fuetsch, AT&T CTO, paused for a moment to think before answering my question about telco cost trends. "“We've gone from 10 gigabits to 100 gigabits to now 400 gigabits on our fiber. MIMO and massive MIMO are extremely productive. Yes, I think 40% per year is a reasonable estimate of how our costs are going down. AT&T’s leadership in open white box and SDN will continue to drive that number higher, which is needed as network demand increases.""
Lee Hicks and others at Verizon estimated their costs were falling 40%/year. Does that that sounds right to you, I had asked Fuetsch. Andre had just presented the challenge he faces of continued traffic growth. Whether cost savings can cover the increased traffic carried is a major question.
I know cost accounting is heavily subjective; in a past life, I wrote accounting software. For example, Fuetsch leads both AT&T's capital spending and its operation. How much of his salary should be allocated to each?
The remarkable Reliance Jio has added an almost unbelievable 300 million customers in just three years. Is it profitable already? The financial releases claim it is, but Economic Times believes Jio has chosen an inappropriately low figure for depreciation. Accounting statements are indicators, not absolute answers.
If Cisco's traffic forecasts are accurate and the 40% productivity improvement continues, AT&T faces overcapacity if it maintains the current capital spending. Cisco has been reporting a consistent fall in traffic growth for several years. It anticipates U.S. growth falling to ~30% in 2021. Tower company Crown Castle, a major supplier to all U.S. carriers, is seeing a similar trend. To be proven.
I have been able to confirm that the 40% Verizon efficiency savings figure is on target if not exact. You can replicate my thinking. Traffic has been growing 40% per year. Sales have been roughly flat for the similar time period. If productivity growth hadn't been a similar 40%, profits likely would have trended down. In fact, they have been flat or slightly increasing.
That's not absolute proof but does support Lee's expert opinion. I can't perform a similar analysis on AT&T's figures, which also include Time Warner and DirecTV. Top analyst Craig Moffett tries to break things out but doesn't find enough information in the AT&T financial reporting.
Andrew Collinson asked me, "Exactly how and where, and how does it work with write-offs/write-downs etc.?" While I can confirm the overall figure with the macro analysis above, I don't think anyone has the data to be exact on the details. Fuetsch in his presentation pointed to the success they are finding with Open RAN as well as the improvement in wireless and fibre technology.
Hicks is particularly proud of the "One Verizon" work that is rebuilding the transport and core. Verizon over the years has accumulated about 200,000 routers, switches, and the like. The wired, wireless, and enterprise networks had enormous duplication. He's replacing them with about 20,000 modern boxes, which are very efficient. He estimates the first year savings is about 50%.
In 2014, Paulraj and others predicted a pace of wireless improvements others found unbelievable. MIMO, carrier aggregation, 256 QAM, and other technologies were reaching the market.
Five years later, Paulraj is proving right.