AT&T Inc. (NYSE:T) is conducting real-world tests of AirGig, a new technology that will deliver high-speed internet over power lines.
It’s only a test. It could be years before the technology could be rolled out on a large scale that would make a meaningful contribution to the company’s bottom line. With the current debate surrounding net neutrality, though, a technology like this — that allows for an all-new means of providing broadband service anywhere and everywhere — is certainly worth discussing.
An organization that can bypass the current need to lay high-speed internet cable will be very well positioned to secure a sizable piece of the U.S. broadband market, which is now 94 million subscribers strong. At a median price of $80 per month, broadband internet is a $90 billion pie that AirGig will give AT&T a piece of.
Uneven Playing Fields
The timing of the test is coincidental, but apropos. The FCC voted last week to end rules that require broadband service providers to treat all web traffic equally, making a lack of competition within the internet service provider world a stark concern.
An estimated 46.1 million homes in the United States only have one high-speed broadband provider offering service in their area. That provider, under the newest FCC ruling, would be allowed to slow down digital content from sites like Netflix, Inc. (NASDAQ:NFLX). Such a maneuver could clearly hurt both Netflix and internet users. And there would be no recourse for Netflix or alternatives for customers.
Further concern arises because the largest ISPs are also cable television providers and even movie and television studios. Comcast Corporation (NASDAQ:CMCSA) offers Xfinity broadband, but also owns NBC television and Universal Studios,Verizon Communications Inc. (NYSE:VZ) offers its own internet and cable services, but also owns Yahoo and AOL. Both companies benefit from making it easier for its broadband customers to find and view their own shows and movies.
AT&T is no less vulnerable to such trappings. It already incentivizes subscriptions to its DirecTV service for existing telco customer. It’s also aiming to acquire movie and media giant Time Warner Inc (NYSE:TWX), which will allow it to leverage its position as a media and a medium.
AirGig Could Change Everything
Regardless of who owns what, using pre-existing power lines rather than having to lay high-speed cable to reach new customers will introduce competition in areas currently monopolized by Verizon or Comcast. AT&T is leading the way on this front, a great position to be in as the next era of broadband internet takes shape.
AirGig circumvents the need to run a physical line all the way to a house. Instead, one small antenna affixed on top of a pole can provide wireless broadband service to many houses in an area. Subscribers would use simple and affordable hardware to connect to that signal inside their homes.
The connection speeds using this approach can reach or exceed the one gigabits per second that qualifies as ultra-high-speed service, making it competitive with fiber-optic connectivity.
The underlying AirGig technology (which is highly patented, by the way) could also be a solution to the problem of overcrowded airwaves.
While the advent of 5G mobile connectivity is a game-changer, the ability to create a multitude of radio-based signals still strains bandwidth. There are only so many radio frequencies that can be used in a given area at any given time, so the FCC currently rations them out via an auction process.
With AirGig, a great deal of 5G connectivity can be achieved without the use of radio waves.
It remains to be seen how AT&T will be able to use an AirGig network to provided home-based broadband as well as infrastructure for a stronger 5G mobile network. It’s clear, however, that a successful AirGig test sets the stage for solutions to a number of existing problems, and lays the groundwork for future revenue growth.
Looking Ahead for T Stock
The net neutrality debate is going to come to a head well before AirGig is ready for commercialization. Litigation against the FCC’s recent decision is already being prepared, and members of the U.S. Senate and House of Representatives are preparing to use powers granted by the Congressional Review Act to undo the FCC’s decision. It’s unlikely net neutrality is actually going away anytime soon.
Then again, neither is the effort to end it.
ISPs are increasingly not only the messenger but also the message. They benefit from control of their physical lines to consumers even more when the content delivered to consumers is also owned by them. That’s not to say AT&T won’t do the same. That’s precisely why AT&T is looking to acquire movie and television outfit Time Warner.
But AirGig’s implications are bigger than the bickering about these self-serving relationships between ISPs and content creators.
AirGig marks the potential beginning of real competition in the broadband space. And with plenty of patent protection to lean on, AT&T is uniquely positioned to become an ISP wherever it wants to.
It’s this game-changing possibility that makes T stock such a compelling prospect for patient investors. A bigger piece of a poorly-served multi-billion market is at stake.
As of this writing, James Brumley held a long position in AT&T. You can follow him on Twitter, at @jbrumley.
