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AT&T announces "$14-billion" capital investment plan
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As part of its third quarter earnings reporting, AT&T has announced that it will invest $14-billion over the next three years "to significantly expand and enhance its wireless and wireline IP broadband networks to support growing customer demand for high-speed Internet access and new mobile, app and cloud services." Randall Stephenson, AT&T chairman and chief executive officer, commented that "[t]his is a major commitment to invest in 21st Century communications infrastructure for the United States and bring high-speed Internet connectivity – 4G LTE mobile and wireline IP broadband – to millions more Americans."
Many news outlets, including the New York Times, portrayed this announcement as if AT&T had committed to spending an additional $14-billion above and beyond existing planned capital expenditures. This is exactly the mis-impression AT&T must have been hoping to create. On the very same day, the company filed a petition with the Federal Communications Commission concerning AT&T's transition from TDM to IP network technology. Specifically, AT&T would like the FCC to eliminate what remains of telecommunications regulation. AT&T's concurrent $14-billion announcement was no coincidence – it is a regulatory carrot and stick.
In reality, AT&T is not investing $14-billion extra in its network. AT&T is simply enumerating how it is planning to spend a portion of its pre-existing capital budget. An additional $14-billion over three years would represent a nearly 25% increase in AT&T's current capital spending. However, in the same announcement, AT&T detailed its expected total capital expenditures for the next year: $22-billion, representing just $1.3-billion over its existing, growth-adjusted annual rate of capital investment.
Companywide, AT&T has added just $8-billion in net property plant and equipment over the last four years, or an average of just $2-billion annually. All of this increase is attributable to AT&T's wireless business. AT&T – and its ILEC countertpart Verizon – have been disinvesting in their wireline networks for years.
AT&T's wireline broadband expansion plans involve minor network upgrades, including increasing penetration of the company's fiber-to-the-neighborhood (FTTN) U-verse offering. U-verse, based upon aging DSL technology, provides significantly slower data speeds than cable competitors and Verizon's FiOS product. AT&T claims it can increase speeds using Digital Subscriber Line Access Multiplexers (DSLAMs) to bind multiple DSL channels together. AT&T is spending less on this technology than its annual depreciation expenses on wireline property, plant and equipment.
On the wireless side, AT&T's capital plans focus on the deployment of 4G LTE equipment. AT&T hopes to cover 300-million people with LTE service by the end of its three-year capital cycle. However, AT&T's wireless network already covers this service territory. As discussed in Views and News, March 2012, LTE is an simply an incremental upgrade to most modern 3G network gear, involving mostly software upgrades rather than entirely new hardware. AT&T's investment plans in this area are simply routine network upgrades, neither cutting-edge new technology nor out of the ordinary for the industry.
AT&T could certainly afford to increase its capital expenditures. In the very same press release, the company announced an increase in its cash payout to investors. The company will now pay out more than $10-billion in cash dividends annually to stockholders. "Given our confidence in our industry and in our future, today we increased our quarterly dividend for the 29th straight year. I'm confident we can continue to deliver for our owners as we invest to position AT&T for stronger growth in the years ahead," Stephenson said. Increased confidence indeed. AT&T must be counting on greater regulatory success than it saw with its proposed takeover of T-Mobile.
For more information, contact Colin B. Weir at cweir@econtech.com
Read the rest of Views and News, November 2012.
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About ETI. Founded in 1972, Economics and Technology, Inc. is a leading research and consulting firm specializing in telecommunications regulation and policy, litigation support, taxation, service procurement, and negotiation. ETI serves a wide range of telecom industry stakeholders in the US and abroad, including telecommunications carriers, attorneys and their clients, consumer advocates, state and local governments, regulatory agencies, and large corporate, institutional and government purchasers of telecom services. |
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