November 20, 2014 — AT&T’s reduction in capital expenses guidance for 2015 was the result of completing several projects, including Project Velocity IP, AT&T’s Chairman and CEO, Randall Stephenson told the Wells Fargo Technology, Media & Telecom Conference on Nov. 12 in New York.
Project VIP has required a historic investment for four years now, Stephenson said. Capex, which spiked at $21 billion for the last two years, will slow to $18 billion in the coming year.
“I am not sure you could find a four-year string where a company has invested more in United States than we have during that period of time. It’s been a $20-plus billion a year effort, plus spectrum acquisition, plus fueling investments, acquisition to improve our footprint,” he said.
AT&T accomplished several things during that time. It built out its LTE network to reach its goal of 300 million POPs, deployed a lot of small cells, ran fiber to 650,000 businesses and increased Internet speeds to 57 million homes.
Considering the spike in the last four years, Stephenson said it was only natural for capex to come down, noting that $18 billion is the industry norm of 15 times run rate.
Regulatory Uncertainty May Pull Capex Down Further
Stephenson’s remarks came in the wake of President Obama’s remarks that the FCC should reclassify the Internet as a Utility under Title II of the Telecommunications Act. He said that if regulatory uncertainty surrounds the Internet could cause the carrier to reduce its capex even further.
“And while the rules probably are not going to change in the two to three year timeframe, we are now starting infrastructure projects that we don’t have any clarity or line of sight in terms of what rules those will be governed under,” Stephenson said. “So you are doing multi-billion investments and you really have no clarity in terms of how those investments will be regulated.
That can have no effect other than to cause one to pause.”
Jess L. Lubert, Senior Analyst, Wells Fargo, said that AT&T’s comments cloud the carrier’s capex picture, raising questions concerning recent guidance offered by communication equipment suppliers.
Not just AT&T was spooked by the President’s comments. Verizon and Frontier Communications both noted how much capital they have risked in building out their networks, according to Jennifer Fritzsche, Wells Fargo senior analyst.
“Lots and lots of talk about goings on in Washington, D.C., Fritzsche said. “The most controversial commentary came from AT&T, which noted that spending related to its fiber push out (GigaPower) may have to ‘pause’ until some clarity on this Title II is seen.” She added that other companies argued that a free and open Internet would boost capital investment in the long run.
Despite lower capex forecasts, spending on towers will continue, with all four carriers declaring a need for more capacity, according Fritzsche.
“We continue to believe the U.S. environment is a very good one for towers right now,” she said. “While none of the carriers would speak to the spectrum auctions because of the ongoing AWS-3 auctions, we continue to believe this will be a catalyst for the sector.”
J. Sharpe Smith is the editor of AGL Link and AGL Small Cell Link newsletters.
Quotes from Stephenson are courtesy of Seeking Alpha.