As it unveils its Q4 and full year results, AT&T announces a reduction in annual capex of up to 15% in 2009

January 28, 2009

4 Min Read
AT&T Cuts Capex by up to $3B

Hold on tight if you're on the 2009 telecom systems joy ride -- things could get a bit bumpy.

AT&T Inc. (NYSE: T) unveiled its fourth quarter and full year 2008 results this morning and, while highlighting significant progress in both fixed and mobile services uptake, especially in terms of iPhone subscriptions and U-verse uptake, the carrier delivered something of a bombshell to the telecom systems market with its 2009 outlook. (See AT&T Reports Q4.)

The carrier, upon which so many vendors rely for regular and, in many cases, significant revenues, says that, while it expects full year 2009 revenues to increase "in the low single-digit range" from 2008's $124 billion, it is cutting its planned capital expenditure (capex) budget by between 10 percent and 15 percent.

AT&T's 2008 capex total was $20.33 billion, comprising $19.67 billion of actual capex and $659 million of interest payments accrued during construction.

Using that 2008 total, AT&T's 2009 capex is set to be in the $17.3 billion to $18.3 billion range: That's a potential annual reduction of about $3 billion, which would average out at $250 million per month.

In 2007, AT&T's capex budget was $17.9 billion.

The news will likely have planners and accountants at multiple equipment firms, as well as a number of industry analysts, reaching for their calculators. (See Tellabs: Carriers Cautious on Capex, Ciena: This Ain't No 2001!, Sizing Up AT&T's Cuts (and Chops) , and Verwaayen Unveils AlcaLu's New Plan .)

Verizon Communications Inc. (NYSE: VZ) was less forthcoming yesterday as it announced its fourth-quarter numbers, saying only that it is "targeting capital spending, excluding amounts related to the acquisition of Alltel Corporation, to be less than the 2008 total."

AT&T's crucial fiber-based broadband access project looks to be a capex survivor: The carrier says it "expects to make continued good progress on its U-verse network build in 2009. Deployment currently reaches 17 million living units, and the company expects to reach its previously announced target of 30 million living units in 2011, a year later than its original plan."

AT&T ended 2008 with more than 1 million U-verse TV subscribers, having added 264,000 during the final three months of the year, its highest quarterly gain so far. (See AT&T Zeroes In on 1M U-verse Subs.)

Linked to that growth is AT&T's wireline IP data revenues. The carrier says those revenues grew by more than 14 percent in the fourth quarter, driven by growing demand for U-verse services and for "business products such as Virtual Private Networks (VPNs) and managed Internet services," though specific revenues numbers were not provided.

AT&T added 2.1 million net wireless subscribers in the fourth quarter of 2008 and 7 million over the whole year, bringing its total wireless subscriber base to 77 million at the end of 2008. Those subscriber growth numbers beat Verizon Wireless 's fourth quarter and 2008 subscriber additions of 1.2 million and 5.8 million, respectively. (See Verizon's FiOS Grows, Wireless Slows in Q4.)

Apple Inc. (Nasdaq: AAPL)'s 3G iPhone was a hot item again for AT&T in the fourth quarter as the operator reported 1.9 million iPhone activations. About 40 percent of those activations were new customers.

And those iPhone customers are valuable to AT&T. The operator says that iPhone customers have average revenue per user (ARPU) that is 1.6 times higher than its post-paid subscriber base.

Mobile data revenues in the fourth quarter were up 51.2 percent to $3.1 billion, compared with the same period last year. Data now accounts for 26.6 percent of AT&T's overall wireless service revenue, which is up from 19.9 percent in the fourth quarter last year.

AT&T reported wireless revenues of $12.9 billion in the fourth quarter, up 13.2 percent year-on-year. Wireless service revenues in the fourth quarter were up 13.3 percent year-on-year to $11.5 billion. Full-year 2008 wireless revenues were up 15.6 percent to $49.3 billion compared to 2007, driven by subscriber additions and data services.

AT&T's overall fourth-quarter revenues totaled $31.1 billion, up 2.4 percent from a year earlier, though net income was down 23.3 percent to $2.4 billion.

Full-year 2008 revenues of $124 billion were up 4.3 percent compared with 2007's total, while net income was up 7.7 percent to $12.87 billion.

"Despite the economic environment, we grew revenues in 2008, and I expect 2009 will be another year of overall revenue growth and solid progress for our company,” said CEO Randall Stephenson in a prepared statement used in the carrier's press release. “Looking ahead, while we are cautious about the economic environment, AT&T is well positioned with a strong balance sheet and premier operational assets, and I am very confident in our ability to execute.”

Just who they're going to execute, we don't know.

— Ray Le Maistre, International News Editor, and Michelle Donegan, European Editor, Light Reading

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