AT&T Inc. (NYSE:T) 2020 Wells Fargo 5G Forum June 18, 2020 9:10 AM ET
Andre Fuetsch – CTO & President
Conference Call Participants
Jennifer Fritzsche – Wells Fargo
Great, welcome everyone. We’re on to big blue. I am trying to change my outfit for the carrier I’m interviewing. And we’re really excited to have Andre Fuetsch. Andre is the President of AT&T Labs and CTO of AT&T.
So Andre, I know you have a quick disclosure, and then we’ll jump into questions.
Great, Jennifer. Thanks for having me. Yes, just a quick — our safe harbor statement here.
So some of my comments here are going to be forward-looking, and of course, subject to risk and uncertainties. Results may differ materially. And you can find further information on our Investor Relations website or in our SEC filings. And also, just to remind folks or Jennifer, that we’re obviously in the quiet period of this FCC 105 auction, so I can’t be addressing any questions with respect to that.
So it’s all yours.
Q – Jennifer Fritzsche
Great. Okay. Terrific. Well, maybe just starting with the elephant in the room. Since we’re doing it over this format, it’s showing that life has changed quite a bit in the last few months. And maybe talk a little bit about how the network has held up in these past crazy months in the wake of COVID.
No, absolutely. I mean if anything, what’s keeping the world moving and keeping the world informed is the network. And certainly, AT&T’s network is no exception. We have been handling just a tremendous surge in usage, and frankly, different traffic pattern changes and behaviors as we’ve — are changing our lifestyles here to adjust to the new norms, especially working from home, schooling our children from home.
And we’ve seen some — just a tremendous amount of demand on the network. Our network has handled it extremely well. If you take a look back into early March, when we first saw the first significant work-from-home initiatives were rolled out, the shelter in place, we saw, over our core backbone, over a 25% increase in traffic per. And I’m proud to say that the AT&T network handled it really well. And that’s really due to a lot of hard work by some really great people throughout the Company to make that happen.
So — and the network continues to perform very well as demand is high in all facets of our wireless and wireline networks.
Got it. Okay. That’s great to hear, and I’m glad everyone’s doing well there. We are at a 5G conference. So I’m curious just to hear, we hear about so many different carriers, 5G strategy, 5G coverage milestones and talking points, but curious how you define AT&T’s 5G strategy.
Yes. So our 5G strategy is a multipronged approach. I mean, we’re proud to say we’re going to be nationwide with 5G here later this summer. So we’re really thrilled with that. Right now, just right here, we’re in mid-June, and we have over 160 million POPs covered across 327 markets. So we’re really proud about that.
We have our millimeter wave offering in over 35 cities, and it’s working exceedingly well. In fact, right here in Dallas, I’m actually holding up here one of our 5G phones. This happens to be the S20, and I just did a speed test actually yesterday down the street, and it was almost at 2 gigabits per second. So it’s working exceedingly well.
We’re — you mentioned about the strategy here. So we’re focused on not just millimeter wave, which is little pockets around cities and venues. But also when we talk about nationwide, that’s our low-band coverage. And so we’re really looking at a holistic approach to 5G to covering our consumers, but also, we have a concerted effort around our enterprise customers as well. So a lot going on in manufacturing, in health care, entertainment, as you can imagine, with augmented reality, mixed reality experiences. So it’s a very broad strategy that we’re going after with 5G.
Got it. So when — I know none of us can get in all the equipment makers’ heads of supply chains. But can you speak to the — how you see the 5G device availability? Just showcased one. And there seemed to be a lot of optimism earlier this year that a iconic 5G device would be available in the fall. Again, the world has changed a little bit. I’m curious how you think of it, about it now.
Yes. So just two sides to this, of course. Of course, you have to have a 5G network, and of course, you have to have 5G devices that connect to the network. And so right now, we’ve got a handful of devices already in the market. I mentioned — like I showed you one, that’s actually one I carry around day-to-day. There are several others, smartphones as well as what we call sort of MiFi pucks to allow — connect to our 5G network, and those are working quite well.
As far as our expectations by the end of the year, we expect to have over 15 devices available in the market by end of year, 5G-specific devices. Certainly, there’s a lot of buzz about what’s going to happen with Apple. I can’t comment specifically there. But certainly, as most know, we — with the history of AT&T and Apple goes back to the beginning of the iPhone. So we’re pretty excited, and we’re waiting for their plans. And of course, when they’re ready to launch, we’re going to be right there. So we think that’s going to be a pretty big and important part in the 5G device portfolio when that becomes available.
And anything you’ve seen or hearing from the supply chain side that worries you? I mean, has there been any major disruption in the wake of COVID that either on the equipment you need for your towers or that you hear? I mean, with your role, I feel you like hear a lot. Anything worrisome there?
No. We did, obviously in the early part of the COVID, sort of locked down, shut down. There were some initial supply chain issues. As you can imagine, this is a global supply chain we rely on with here that we deploy, and certainly with the — when you look at the components that go into the network equipment. But I would say right now that that is smoothed out. We haven’t seen any real impacts to our build plans. In fact, that’s something we continue to push very aggressively in our network builds. As you know, there’s quite a bit of lead time it takes to get that equipment out there and deployed and on air, but in short, no, no significant disruptions at this time in the supply chain.
Got it. Okay. Let’s shift to FirstNet. I think you’re at 80% through the build. Is that right? You’re seeing some competition now, T-Mobile coming in with public safety, FirstNet — first responder initiative. Just curious as to — and we know Verizon really has — is bear-hugging the share it has, or trying to. How are you seeing that? How has that been tested? Especially, again, in the wake of COVID, you’ve certainly had some nice gains.
Yes, absolutely. So first, frankly, FirstNet is one of our crown jewels from the standpoint it is the fastest-performing network out there commercially that we have. And we’re really proud of this network, especially with what it’s doing for our first responders, as you can imagine. We’ve already surpassed 80% of our completion plan for our deadline in March of 2021. So we’re actually ahead of plan in rolling that out.
When you look at who we’re connecting with FirstNet, we’ve — we’re connecting with over 12,000 various first-responder agencies across the country, which represents over 1.3 million connections. And that’s growing, we’re proud to say, at a very great rate. And we’re also seeing — if you do, again, as I mentioned earlier, if you look at the performance tests that are going on out there in terms of speed tests, it really is outperforming all our competitors when you take a look at those results. And certainly, there are public sources there that can corroborate that.
So we’re really proud with that offering there, and we expect it to grow. We’re doing some really great things right now with — of course, with the pandemic going on, we have some very great special offers out there for health care workers, nurses and physicians. We’re also doing things for law enforcement and fire and EMS agencies and also some really great rate plan offerings for all first responders. So I think it’s a very compelling value proposition for our customers.
Got it. Right. And part of the — I assume part of the crown jewel aspect of FirstNet is also the spectrum you received from it with its 200 — or excuse me, 20 megahertz nationwide, 700 megahertz spectrum. And that leads to the next question. I know CBRS questions are off-limit, but just overview on spectrum. There is two mid-band spectrum auctions coming to the market, C-band being the larger of the two and just curious how you see your spectrum portfolio right now. And how do you view — how critical is that middle layer of that wedding cake, that middle tier, that mid-band spectrum, to enhancing this portfolio?
Yes. That’s a great question. So look, spectrum is really important, and you can’t just have it in one particular band area. You have to have a rich portfolio of spectrum, and that’s one thing I think AT&T has a great position in.
Obviously, when you take a look at where we’re positioned with millimeter wave, in terms of where we are in the 39 gigahertz space, but also in 24 that we’re now positioning ourselves as well in, that’s great. That’s very — that high band is really all about getting really fast, massive speed.
As you alluded to with FirstNet, that’s a lower band spectrum we’re utilizing there, the 700 band 14, we typically refer to it as. That’s great spectrum in terms of the propagation characteristics. This allows penetration deep through walls, deep down into basements. As you can imagine, this is really important for certain first responders. And then, of course — so we have a very strong portfolio there in what we call the low band.
And absolutely, we’re very interested in the mid-band space. And certainly, C-band, which is coming up, is also going to be an important part of that portfolio in the future, especially for 5G. What’s unique, or I should say different, about the mid-band is it kind of has that good balance of propagation characteristics and speed, hence being in the middle there. The other thing, too, I’d say about mid-band is when you look at 5G deployments outside of the U.S., those have been predominantly focused in that spectrum space already. So the technology is very proven. If you look at specifically in Asia, I’ll just point out South Korea as an example. And you can see a lot of the performance results that they’re experiencing in that mid-band space.
So yes, we’re very interested when that spectrum becomes available. There’s a lot of interesting dynamics I can get into in that spectrum that will have to be cleared out and cleared up. Certainly, it’s going to be, in the long term, an important part of not just our portfolio, but all carriers’ portfolios.
Got it. And if you look at — yes, I mean, there’s this race to 5G. It just seems especially important to this administration. And possibly an infrastructure bill coming with elements of 5G. You view that piece, that mid-band, is kind of critical to making that happen.
Yes. Definitely, in the long run here, it’s important, that with this, as you mentioned, the race to 5G, I think the race is already underway, but we’re moving along here. Absolutely, there’s just this insatiable demand out there for bandwidth, as we all know. I’ll tell you, even at home, I have young children. Even having our AT&T Fiber 1-gigabit service, even for my 8-year-old, it’s not enough. So you can imagine in the wireless space, we see more and more demand. And so obviously, spectrum is going to be very important.
Very important. All right. Andre, I wanted to just shift to fixed wireless. Can you discuss — you mentioned the number of markets you have, I didn’t write it down. So I just want to remind you — remind me of that. And the penetration of rate of the homes passed, I don’t know if you disclosed that. But just kind of maybe some characteristics you’re seeing of those users.
Yes, absolutely. So we have a fixed wireless offering out there. We’ve been participating in the FCC’s Connect America Fund program for this, deploying largely in rural areas. And we have a commitment there: By the end of this year, we expect to offer fixed wireless voice and internet service to over 1 million customers, mostly, again, in rural homes and small businesses. And this is going to be across about 18 states. We’ve already reported, by the end of last year, 2019, we had almost 900,000 completed of that — it’s actually this 1.1 million build that we’re doing by end of this year.
So it’s working well. It’s really not a technology issue at all. It’s — I think it comes down to economics. And of course, this is why it fits well in the rural space, right, just because it becomes cost-prohibitive to physically build fiberoptic facilities out to sparsely populated areas, it’s very hard to make the economics work. So the more we can do to get that in the air is what we’re looking at using fixed wireless for, obviously.
We’ve also, as I mentioned, with our millimeter wave small cell deployments, you can see some pretty significant speed. And again, the idea here is — the strategy is to go in with fixed wireless in areas. Once you get up enough — build up enough density there with connections, then you would follow in with more fiber-based connections. And so that’s what makes AT&T unique here, is we have the sort of multipronged approach to how we connect our customers, not just wirelessly, but also with fiber.
Got it. A large part of the AT&T’s network transformation has also been moving toward software-defined networking and virtual. I mean, you had many ways, you’ve gone from being a hardware company way back when to almost a software company because you’ve so how much of the intelligence over the network. Is there a way to quantify the efficiencies to date that you’ve seen there? And just how — overall, can you leverage these SDN solutions with your 5G effort?
Oh, absolutely. So the SDN program has not only yielded significant, I would say, CapEx savings from the standpoint of driving what we call more disaggregation of hardware and software and allowing more disruptors, a more disruptive technology to come in, and frankly intercept a lot of the, I would say, vendor and technology lock-in that networks have had in the past.
When we look at how SDN networks perform, on the OpEx side, it really enables a whole new level of automation. So I referred to earlier about — at the beginning of the COVID pandemic, we saw these huge surges in traffic demand and also traffic cliffs. As people weren’t commuting into dense urban metro areas for work, they were staying home, yet they had to videoconference in or do whatever they needed to do to perform their duties. And having a software-defined network allowed us to really quickly adapt to those shifts.
Also, we have a lot of enterprise customers that had to augment their networks, basically ours, so that they could increase their video conferencing capacity and capabilities. And a lot of that is software-based. So instead of physically going out and having to deploy more boxes, what — all we had to do was just spin up more software instances to meet that demand. So that’s what SDN has done for us.
As far as our journey, we’ve been very public about this program to virtualize and software-defined-network control our network. And we’ve put out a goal of being 75% of our network being under SDN control and virtualized. And I’m proud to say we’re very close to that goal here and expect to hit it easily by the end of this year. And so a lot going on there, a lot of great examples I can give you if you’re interested.
And I know you’re more in the technology side, but I assume, John Stephens likes that as well, because I assume by doing so, you’re taking out a lot of costs. Is that a fair statement?
Yes. I mean, again, it goes back to automation and what we’re able to do with that. But the network has become so much more dynamic, and so you need more agility to respond. When — I mentioned earlier, on our core backbone network, we saw this 25% surge. This is something we — just within the first 10 days. And we were able to, again, quickly adapt to that because — not to get too technical here, but our core backbone, which is what we call an MPLS-based network which is under SDN control, we were able to reroute and move capacity where we needed it very quickly. And so that’s, again, the power of having software in the network.
And certainly, software is just becoming more and more part of everyone’s day-to-day life, and having the types of controls in the network to adapt and work with that software is becoming more and more important.
Got it. Okay. Great. I wanted to ask about two other technology things. One is the edge. That’s definitely going to be, I think, a lesson learned in COVID, the importance of the edge. It feels like we’ve gone from it being a buzzword a very real event. You already have talked or have announced several technology partners. Microsoft may be the most known one. But just curious as to how you see this edge evolving, the mobile edge computing side of it.
Yes. I think — well, edge is, like you said, is more than just a buzzword. It’s going to become a reality here, already is in some respects. What the edge does, I mean if you think about it back to software developers, developers really typically only had two places where they could develop and launch their applications: One is on the device, on a computer or smartphone, tablet, think about that as an app; and then the other place where she could develop software is in the cloud. Typically, that cloud could be 500, 1,000 miles away from that device.
What the edge does is it gives a new — think of it as a new resource, a new location now, that developers can now take advantage. And that’s in between. So you don’t have to have all this compute horsepower sitting right at the — right in the device. You can now take advantage of not just the cloud compute infrastructure that could be 1,000 miles away, but something much, much closer.
And this is a big deal, and I’ll give you a good example. Think of a self-driving car. A self-driving car — to keep that car moving and keep it safe on the road, going down the road at 60 miles an hour, you essentially have to have a little mini data center in the trunk of the car. Now we all know cars, especially now in this pandemic, cars are one of the least-utilized assets we own, especially in the United States. On average, a car is only utilized about 4% of its operating life. So 96% of the time, it stays sitting in the garage or in a parking spot not being used.
So that little — think of that little mini data center in the trunk being a fairly stranded asset if it’s only being utilized 4% of its life. Now you couldn’t just move that data — little mini data center in the trunk to the cloud data center because that could be 1,000 miles away, and there’s a lot of latency between where that car is and where that compute would be in the cloud. But what if you could move some of that data, that mini data center in the trunk, to the network edge? And — which could be several miles away, 50 miles away. So it could be very responsive. And that’s what 5G is all about. It’s not just big speed, but also very low latency. And so now you have this new resource you can take advantage of, the edge, to make a lot of these future applications, like autonomous driving, much more economical and practical.
I’ll give you another quick example. I don’t know if you can see this. I’m holding up here a little chip. This is an IoT chip. And you’ll have to take my word for it, it’s about less than a centimeter square. And this little tiny chip here is really powerful. It’s a GPS radio. It can connect to WiFi. It can connect to over 23 cellular bands. It has a little microprocessor. It has memory. All in this tiny little chip that can fit on the tip of your finger, and the other great part about it is it’s only a couple of bucks.
Now we talk about IoT and connecting everything. So if I wanted to connect this coffee cup I’m holding up here, it would quickly become a very expensive coffee cup if I had to put a lot of electronics in it. But if I could use something to leverage the edge to make that not just a connected coffee cup that can tell me whether it’s full or not, but maybe it could do some sort of caloric spectrum analysis of what’s actually in my coffee cup.
What I’m actually consuming, that’s kind of the application of the future that 5G and the edge will start enabling, but doing it in an economic way where you wouldn’t strand all of this cost into just a cup. You can then take that and put it in the network or in the cloud and then potentially share it among many other devices. So that’s really the power effect that you’re going to see with 5G and the edge here in the very near future.
So my last question was on IoT. And I guess just that is the edge the critical linchpin to make that happen? Is that the…
Absolutely, I mean, back to the question of some of the engagements we have with the cloud players that you mentioned like Microsoft. One of the use cases we’re working on is looking at how to use computer vision technology to help the retail space adapt to this new norm of social distancing and how do you run a retail store and have your employees and your customers comply with social distancing guidelines, making sure that whatever counters are getting wiped down, things of that sort.
That’s very hard to manage. As you can — as you think about how do you make sure that you’re being consistent across all your retail locations? Well, this is a great application for computer vision that can actually look and monitor and see are — how are employees positioning the point-of-sale systems? Really 6 feet apart, as customers are waiting in line, are the employees directing customers to really maintain those distances? Well, that’s something that computer vision technology can do quite well.
But for it to be responsive and fast, you really need to look at edge-type technologies to make — to do that. Again, you don’t want to have to build a server closet with all of this at the store location, you would much rather do it in a more centralized way. But again, the cloud, that data center 1,000 miles away may be too far away and not responsive enough. So again, another example of how that fits in.
And then as you mentioned, with IoT, if you can start connecting everything with little chips like this and do it cost-effectively, the 5G network is very good at highly scaled, dense networks. And WiFis can only support hundreds of connections in a given space, LTE can do thousands, 5G can do millions. And so that’s what’s really going to open up things you hear about, connecting everything, smart cities and so forth.
So you’ll see in the next release of 5G as it comes down the pipe here, it’s all about IoT connectivity, massive IoT connectivity. And then I think you’re going to see a whole new wave of applications come online.
Great, it’s exciting times for all of you. Thank you so much, Andre. I really want to thank you for the time, and you have a great summer and be safe.
Thank you very much, and the same to you. Appreciate the time.
Take care. Bye-bye.