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Maybe AT&T Won't Accelerate Capex

Craig Matsumoto
12/21/2011

Here's a contrarian theory: AT&T Inc. (NYSE: T) is not ready to quickly ramp capital expenditures now that it's walked away from the T-Mobile US Inc. merger.

"The books are already largely closed on 2012 capex, and it is unlikely that there will be much spending during the annual planning finalization meetings in January," analyst Mike Genovese of MKM Partners writes in a note issued Wednesday morning.

Genovese doesn't expect to see unusually big spending out of AT&T early in 2012, in other words.

Analyst Simon Leopold of Morgan Keegan & Company Inc. agrees somewhat. In a note published Tuesday, he predicted AT&T "might remain frugal" since it's taking a $4 billion charge to pay a kill fee to Deutsche Telekom AG (NYSE: DT), T-Mobile's owner.

The opposing theory is that AT&T sans T-Mobile will start pouring money into its own network. AT&T had "aggressively dialed back Q4 spending" and has given some vendors the impression that first-quarter 2012 spending will be aggressive, wrote analyst George Notter of Jefferies & Company Inc. in a Tuesday note. (See AT&T/T-Mobile: Happy Xmas, Gear Vendors!.)

Of course AT&T does need to put some money into its network. The big catch-up areas will be 3G and optical networking, Genovese writes -- the latter being particularly good news for domain vendor Ciena Corp. (NYSE: CIEN) and "to a lesser extent, Alcatel-Lucent (NYSE: ALU)."

Keep up with all our AT&T/T-Mobile coverage here.

— Craig Matsumoto, West Coast Editor, Light Reading

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gtchavan
gtchavan
12/5/2012 | 4:45:48 PM
re: Maybe AT&T Won't Accelerate Capex


I think ATT is hoping for the world to end in 2012, because if Apple introduces anything in 4G, ATT network will likely collapse to a state that no download or streaming of anything will be possible, just in time for the apocalypse.  Timing is everything.

Pete Baldwin
Pete Baldwin
12/5/2012 | 4:45:45 PM
re: Maybe AT&T Won't Accelerate Capex


The implication I read into the report -- and this is my supposition, not anything Genovese said -- was that big carriers just don't move that quickly. For AT&T to decide, within 3 months, how to spend however-many-billions, just isn't realistic.


As for the reasons Genovese did cite:  AT&T already taking a $4B hit and not wanting to spend *more* right away; AT&T's 2012  budget being largely set (which ties in with my point, above); AT&T and everyone else staying cautious due to the macro-economy.


So, yes, I can see AT&T sitting on that money for a while.

baznyankee
baznyankee
12/5/2012 | 4:45:45 PM
re: Maybe AT&T Won't Accelerate Capex


Just saw Reuters quoting Nikos that the breakup fee was $3 billion.  Maybe a typo or are we just talking pocket change.


Economy certainly can get in the way of spending, however if that were such a concern the original T-mobile spend wouldn't have happened.  I think ECRI has been calling for another recession since September, and that fiasco of US House holding debt ceiling hostage, with resulting debt rating, didn't seem to bother ATT's spending picture.


Who knows?  Maybe ATT attempts to buy someone else rather than spend to upgrade their own infrastructure.

baznyankee
baznyankee
12/5/2012 | 4:45:45 PM
re: Maybe AT&T Won't Accelerate Capex


Did Genovese give any reasoning for his thinking? 


This dropping of T-Mobile frees up a lot of dough that they will then sit on?  Unlikely!

Pete Baldwin
Pete Baldwin
12/5/2012 | 4:45:44 PM
re: Maybe AT&T Won't Accelerate Capex


Nikos is right about a $3B fee for the breakup. AT&T is taking a $4B total writeoff for ending the deal, IIRC, which is what i was referring to.


> Economy certainly can get in the way of spending, however if that were such a concern the original T-mobile spend wouldn't have happened.


Yeah, I can buy that argument. But T-mobile would have come with immediate revenues and scale, whereas building a network the hard way... to me, that just seems like the kind of slow work that Wall Street doesn't like to hear. It's a tougher story to sell to hedge fund managers. (Maybe Christmas is making me overly cynical here.)


> Who knows?  Maybe ATT attempts to buy someone else rather than spend to upgrade their own infrastructure.


That could very well be true. Like you said, they were happy to spend that cash just a couple months ago!


paolo.franzoi
paolo.franzoi
12/5/2012 | 4:45:43 PM
re: Maybe AT&T Won't Accelerate Capex


Capex spending and buying companies with Stock are two very different things.  Don't think one budget wise has anything to do with the other.


seven

baznyankee
baznyankee
12/5/2012 | 4:45:43 PM
re: Maybe AT&T Won't Accelerate Capex


You are certainly correct here, seven.  I believe that ATT slowdown in capex spending was so that money could be used to lobby for their merger.  Who knows just how much $ was involved, but certainly the $4B to be spent to breakup this merger could easily eat up the amounts talked about.

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