Telecom giant AT&T (T 0.18%) is rapidly expanding its fiber internet business. Along with 5G, fiber represents one of the company's critical long-term growth opportunities. While demand for AT&T's legacy wireline services is in decline, the fiber business is already big enough to drive growth for the consumer wireline segment.
AT&T had 7.7 million fiber subscribers at the end of the second quarter, up from 6.6 million one year prior. Fiber revenue grew by 28% year over year thanks to subscriber growth and an increase in average revenue per subscriber. On top of laying its own fiber network in its existing service areas, AT&T's fiber joint venture with BlackRock will allow the company to offer fiber services in new markets.
AT&T's competitors, including T-Mobile and Verizon, have been pushing wireless broadband services powered by their respective 5G networks. Unlike fiber internet, where fiber optic cable must be run to each home or business, wireless broadband works with the same 5G networks that connect tens of millions of smartphones. For the consumer, this means easy setup with minimal fuss. For the wireless carrier, it means no costly build-outs of fiber networks.
Expanding its options
Until now, AT&T has put its internet service focus solely on fiber. While wireless broadband works well in areas with strong 5G coverage, download and upload speeds will be slower and less reliable than what one could get from a fixed fiber connection. And during times of network congestion, home internet powered by a 5G connection could be slowed substantially. Fiber, on the other hand, doesn't have this problem.
Building out fiber connections to individual homes and businesses is expensive, and in some areas, the return on investment just isn't there. In reasonably dense cities where AT&T already has infrastructure in place, fiber is a no-brainer. But in more sparsely populated areas, running fiber directly to customers may not make sense financially.
AT&T announced earlier this month that it's getting into the wireless broadband business. By using its excess network capacity in less densely populated areas, AT&T can offer 5G-based home internet service to customers who won't have access to the company's fiber network. The new service is called AT&T Internet Air, and it competes with similar services from T-Mobile and Verizon.
AT&T is touting how easy it is to get Internet Air up and running. The setup is entirely self-service, and the company claims that new customers can be up and running in less than 15 minutes. That's likely a big positive for potential customers in areas only served by legacy internet options. Internet Air is available in 16 metropolitan areas to start, priced at $55 per month with no equipment fees and no contracts.
Wireless home internet services have proven popular. T-Mobile had about 3.7 million subscribers for its 5G-based home internet service at the end of the second quarter, and it has been gaining at least 500,000 new subscribers in recent quarters. Ease of setup coupled with solid speeds makes these services a great option in areas with minimal high-speed internet options.
Fiber is still king
Ultimately, fiber is going to offer a better experience than any wireless-based home internet service. AT&T continues to expand its fiber network, with plans to pass at least 30 million homes and businesses by the end of 2025. The company will also offer fiber services in additional areas through its fiber joint venture.
AT&T's Internet Air service serves two purposes. First, it allows AT&T to offer fast internet service in areas where it's planning to build out its fiber network in the future. By winning home internet customers now, the company can more effectively sell them on superior fiber internet service down the road.
Second, AT&T will be able to offer high-speed internet in areas where it wasn't planning on expanding its fiber network, but where there is sufficient 5G coverage and where it already has customers using its legacy wireline services. Instead of losing those customers to competitors, the company can retain them by offering a much faster home internet experience.
While fiber remains a bigger long-term growth opportunity for AT&T, the new wireless broadband service could help the company generate additional revenue from its 5G network and hold onto wireline customers that it would have otherwise lost.
