The Federal Communications Commission (FCC) recently decided to suspend revision of tariff on time-division multiplex (TDM) based special access services by AT&T, Inc. (T - Analyst Report). According to reports, FCC has suspended certain tariff revisions for five months and has called for an investigation before the increased rates on special access services come into effect.
Special access tariffs are charges on Internet bandwidth, or in other words charges on dedicated wireline circuits, typically owned by large telecom carriers like AT&T and Verizon Communications Inc. (VZ - Analyst Report). These services are sold to competitive carriers like Sprint Corporation (S - Analyst Report) and T-Mobile US, Inc. (TMUS - Snapshot Report).
Any increase in these tariffs would directly affect the customers of these competitive carriers who pay the special access charges in lieu of dedicated wireline circuits for Internet services. Since FCC intervention has debarred AT&T to pursue any price hike in this service category, we believe this may likely hurt the company’s operating profits going forward.
Further, the company’s wireline division is struggling with persistent losses in access lines because of competitive pressure from voice-over-Internet protocol (VoIP) service providers and aggressive triple-play (voice, data, video) offerings by the cable companies. These are weighing on the company’s revenues and margins. As a result, any further regulatory intervention can worsen situation for the company, in particular for its wireline business.
In addition, the new spectrum auction by FCC will likely be available over next year. If AT&T fails to acquire substantial bands of spectrum under the auction, the company’s business prospects could be hurt.
AT&T has a Zacks Rank #3 (Hold).