AT&T vows to keep spending
AT&T reaffirmed its capital spending plans for the year today, quelling fears in the market that it would trim its budget amid macroeconomic pressures. But because the carrier spent more than expected in the first half, it will spend slightly less in the rest of the year.
Though acknowledging a tough US economy, AT&T, which accounts for about a third of the US carrier market, still expects its capital expenditures to be a mid-teens percentage of its revenue this year.
“We’re not going to slow down in areas we think are important to future growth,” said Rick Lindner, AT&T’s chief financial officer. “Primarily with respect to our U-verse ramp and build, our build in 3G wireless, and the key projects we have going on supporting the enterprise and wholesale businesses. However we are…looking to trim some projects and have been doing that throughout this year. But the impact of that effort is more in the hundreds of millions of dollars, not billions of dollars. We had a strong capex quarter in Q2. When you look at our major projects, U-verse and 3G wireless, I’d expect spending in the second half to be similar but probably at a slightly lower level. That’s just the timing of the build in both of those projects.”
In a research note today, Morgan Keegan analyst Simon Leopold called the reaffirmed capex news “a mixed blessing” for the telecom industry.
“The good news is that capex is not getting cut, as many feared, while the bad news is with this quarter’s upside, there is less money in [the second half of this year],” Leopold wrote.
In the second quarter, AT&T’s capex was $5.14 billion, higher than analysts’ average expectations of $4.53 billion. Its total capex was up 23% sequentially and up 25% from a year earlier, Leopold wrote. Wireline spending rose 11% sequentially and 14% from a year earlier, while wireless spending jumped 79% sequentially and grew 112% from a year earlier.
“We think [this] reflects an aggressive expansion of 3G coverage front-running the release of Apple’s 3G iPhone and rapid growth in data traffic, with data revenue rising 50%,” Leopold wrote. “U-Verse is coming on line as expected, so we feel some relief consider the chatter about slow-downs.”
One of the first AT&T suppliers to report second-quarter earnings this season, access equipment vendor Adtran, complained last week of “constrained” spending among US carriers (citing tier-two carriers in particular), but said AT&T increased its spending on Adtran’s broadband gear in the second quarter.
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