An AT&T executive casually told an audience attending the Wells Fargo 2016 Convergence & Connectivity Symposium that a significant part of AT&T’s wireless network was built with money intended for AT&T’s landline network.

“I came more from the wireline [landline] business and had always a little bit of frustration for me because for many years before I picked up operations in construction and everything for the wireless side of the business, in the wireline world, I was spending a lot of money that was directly supporting the wireless operation, but it showed up as wireline spend,” said Bill Smith,  who has been with AT&T for 37 years and has served as president of AT&T’s Technology Operations since January, 2010. “So we’re not that good at allocating those expenditures.”

Smith’s admission gives further evidence that AT&T has been shortchanging investment in wireline and fiber networks for years, to the benefit of AT&T’s profitable wireless business.

Smith

When mobile networks were first being constructed, there was concern that private investment, not landline ratepayers, be responsible for covering the costs of building wireless infrastructure. Both AT&T and Verizon submitted regular rate increase requests to state regulators during the period, claiming additional compensation was needed to cover the costs of landline network upkeep and upgrades. In most cases, regulators approved those rate increases.

Smith’s admission suggests AT&T systematically allocated expenses associated with its wireless network on the wireline side of the business ledger, reducing the amount available to maintain landline service. Had regulators known, they would have likely rejected the rate increase requests and, more importantly, required AT&T to stop spending landline ratepayer funds on wireless networks.

By depleting funds designated for wired networks, AT&T ultimately made a cheaper choice about the type of advanced network it would deploy. AT&T rejected Verizon’s choice of FiOS fiber to the home service because it was ‘too expensive.’ AT&T’s less costly solution, U-verse, relies on fiber to the neighborhood, with existing copper wiring remaining in place between the nearest fiber link and the telephone interface box on the back of your home or business.

Smith also handily defeated his employer’s justifications for data caps, telling the audience AT&T has strong capacity with plenty to spare, noting increasing traffic demands on AT&T’s networks are nothing new for the company.

“But getting back to the capacity question, I don’t lay awake at night worried about that,” Smith said. “Yeah there are a lot more demands coming in to the business, but there is nothing new about that. We’ve lived through many, many cases of new applications, new waves causing increases in consumption. I feel very good about where we are. The density of our network is very strong, and as I mentioned, I think we lead the industry in terms of U.S. footprint in the density of our network and that’s great. Also we have things like small cell coming on the horizon.”