AT&T showed positive but slowing growth in its July 24 2Q16 earnings call. The wireless business of the carrier is being buffeted heavily by a combination of lower take rates due to high wireless penetration, customers keeping their devices and calling plans longer, and competitor market share capture.
In the quarter, AT&T Mobility added 1.34 million new subscribers to its base of 132 million, even as new subscriber additions have been declining at a rate of 10 percent per quarter from a peak of 2.1 million in 2Q15.
Wireless service revenues reached $15 billion but have remained essentially flat for the past two years. Average revenue per unit (ARPU), at $37.88 a month in 2Q16, has declined at rate of 2 per cent per quarter since 2Q14 where it was $43.41.
Of note, wireless service revenues in 2Q16 accounted for 37 percent of AT&T total revenues, down from 47 percent in 2Q15.
With lower current and projected revenues, the company indicated lower wireless capital intensity (the ratio of capex to service revenue) for 2016 down to 14 percent from a high of 19 percent in 2014. Ratios above 15 percent indicate network growth and expansion while figures below 15 percent suggest that the company is in maintenance mode.
AT&T claims it has adequate data-handling capacity built into the network from the earlier Project VIP activity and core software upgrades, so it Is scaling back wireless capex in the short term. But it cannot wait too long. The company still expects a ten-fold increase in mobile data traffic by 2020.
AT&T’s guidance on capital spending is like fuzzy math, though, meaning it is not clear how the numbers add up.
At the end of 2015, AT&T provided guidance of overall capex for 2016 “in the range of $22 billion” without specifying the range. Now the company says that its 2016 guidance is on track with “Capital spending in the $22 billion range, Trending toward the low-end at mid-year.”
So, what is the low end of the range, and what is the breakout by business segment?
As a dominant player in the telecommunications business, AT&T ought to be more transparent for its investors and suppliers.
Here’s our take: AT&T’s total capex will come in at $20 billion, in line with $19.2 billion in 2015 and $21.2 billion in 2014.
Of that, wireless capex represents less than half of the total, however. Given the current guidance on capital intensity, we estimate that AT&T will invest $8.4 billion in its wireless infrastructure in 2016, down 4 percent from $8.7 billion spent in 2015.
Much of that expenditure is for macrocell additions and modifications. AT&T is embarking on a large-scale small cell rollout but will not be reflected until 2017 and beyond.
Already operating with 150 megahertz of spectrum, the company plans exploit another 40 megahertz of spectrum capacity for 4G LTE and 5G in AWS (1.7/2.1 GHz) and WCS (2.3 GHz) bands during the next several years.
Wireless capital spending in the quarter came in at $2.3 billion, up 10 percent sequentially from 1Q16, and up 15 percent, year over year, from $2 billion in 2Q15. Spending through the first six months tallied 51 percent of the projected full-year total.
Given the company’s ‘fuzzy’ guidance, capex likely will be $2-2.1 billion per quarter through year-end, well below second-half spending of the prior two years.
John Celentano is a principal in Skyline Marketing Group, which provides technology marketing & sales strategy advisory in advanced communications services, and wireless, telecom, data networking infrastructure markets. The firm also develops client-specific print and digital marketing campaigns with customer-focused vectors (media articles, white papers, application notes, emails, advertising, webinars, trade show/conferences, web content, videos, SEO, blogs, public speaking, press releases). Additionally, support is provided for internal positions in market analysis, business development, strategic planning, strategic marketing, product management, product marketing, sales operations.
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