Vendors await return of AT&T spending

With regulatory approval of the AT&T/BellSouth merger resolved, equipment vendors that supply the two companies eagerly await a return to typical spending patterns, which many say paused while regulatory approval was delayed.

“Hopefully at some point we can return to normalcy,” Jim Matthews, Adtran’s chief financial officer, said at an investor conference today. “In terms of the timing of a return to normalcy, we won’t know until we start seeing a return of order flow from those customers. We’re certainly seeing order flow, but not to the extent we saw before we entered the third quarter.”

Sales of Adtran gear to AT&T slowed in the second half of last year, and BellSouth followed suit in the fourth quarter, Adtran said. Other customers Embarq and Windstream also curtailed some spending in the fourth quarter, causing Adtran to lower its revenue expectations in December. Adtran suspects the pause in spending from AT&T and BellSouth was related to their pending merger while the other two carriers were simply trying to stay within their annual budgets.

“Even with the merger of AT&T and BellSouth now closed, spending will not snap back immediately,” Morgan Keegan analyst Simon Leopold wrote in a research note today.

Adtran could benefit from a concession AT&T made in order to ease regulatory approval of the merger. The carrier told the Federal Communications Commission it would make DSL available to 100% of its residential customers. It may use equipment from Adtran Alcatel-Lucent and Tellabs to make good on that promise.

“AT&T has historically brought its favored vendors’ products into the networks of its acquisitions,” Leopold wrote. “Because BellSouth has not historically purchased material DSL gear from ADTRAN, we consider this a new opportunity.”