AT&T chief says Net neutrality qualms could crimp fiber plans

CEO Randall Stephenson weighs in on President Obama's call for tighter rules on broadband providers. He also talks up AT&T's big bet on Mexico.

AT&T CEO Randall Stephenson warned that he could hold off on many of his company's capital investment plans -- including fast new fiber lines -- if uncertainty persists over how the US government will regulate the Internet.

AT&T CEO Randall Stephenson has some strong opinions about Net neutrality and Title II. Stephen Shankland/CNET

"It's prudent to pause," he said at an investor conference Wednesday. "We want to make sure we have line of sight on this process and where these rules could land, and then re-evaluate."

The comments come two days after President Obama threw his support behind the idea that broadband services providers should be regulated under Title II of the Telecommunications Act, which would treat Internet service providers more like utilities and would give the government more say over how much they can charge customers.

Obama's Monday announcement, addressed to the Federal Communications Commission, set off a flurry of responses. Broadband companies such as AT&T, Verizon and Comcast warned the regulations would be onerous and might curtail investment and innovation. Consumer advocacy groups and Internet companies lauded the move, saying it was the only way to ensure Net neutrality, or the concept that all Web traffic is treated equally.

FCC Chairman Tom Wheeler said later on Monday that all options are on the table. Wheeler is reportedly looking at a middle-ground approach that would merge some of Obama's proposals in favor of Net neutrality while addressing concerns from Internet service providers.

While Stephenson said Obama's proposal provides clarity on his expectations for how the Internet should be regulated, he warned that the process of changing the rules to put broadband under Title II could take two to three years at worst -- and a year at best. He also said any such proposal would face legal challenges.

While this happens, capital investments could be curtailed, Stephenson said. AT&T last week said it expects to invest $18 billion in its network next year, but added the number could drop if the uncertainty persists. Specifically, the company's goal of bringing faster fiber-optic lines into new cities could be put on hold until it gets more clarity on any potential Internet regulations.

AT&T had planned to invest in bringing its GigaPower 1-gigabit broadband service -- a competitor to Google's superfast Google Fiber service -- into 100 cities next year.

"We can't go out and invest that kind of network without knowing the rules governing the network," Stephenson said.

Big deals

One place where Stephenson said he is making a bigger bet is in Mexico. The company said Friday it plans to spend $2.5 billion to acquire Mexican carrier Iusacell.

Mexico recently changed its telecommunications rules to enable more foreign investment, and Stephenson said he was impressed with how attractive the market there has become. The country has a growing middle class, a young population, and a vibrant economy, he said, adding that he wants AT&T to be in the market early to it can capitalize on the looming mobile Internet revolution.

"It'll be a terrific growth opportunity," he said.

He envisions a consistent network experience across the US and Mexico, which would give AT&T a geographical edge over its rivals. Cricket, AT&T's prepaid wireless business, already has a proportionately high number of Latino customers, which would work well with its pending Iusacell acquisition.

AT&T's other large deal is the pending $48.5 billion acquisition of DirecTV. Stephenson acknowledged that with 6 million U-Verse TV customers, AT&T's television business lacked the scale to make money, with most of the costs sunk on paying for the content itself.

DirecTV adds 20.3 million customers, giving AT&T the scale to profitably run a television business and negotiate for additional content rights on mobile, with Stephenson saying such deals would be a priority once the deal closes. That's expected to happen some time next year.

Stephenson also talked about the "hypercompetitive" environment on wireless, boasting that he was willing to defend the "premiere smartphone customer base we have built. AT&T has found itself drawn into a price-and-data war largely spurred on by rivals T-Mobile and Sprint, which have offered discounts and additional data packages in an effort to take market share.

Even as AT&T's capital expenditure total drops off -- its 2015 target is $3 billion lower than this year -- Stephenson said the network remains a priority. "We won't compromise on best-in-class network performance."

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