Verizon Upped LTE Spending in 1H'11

Verizon Communications Inc. (NYSE: VZ) revealed Friday morning that it has increased capital expenditure on key projects -- such as the 4G Long Term Evolution (LTE) network from Verizon Wireless -- in the first six months of the year, even if capex is expected to remain flat for 2011 as a whole. (See Verizon's Q2 Revenue Up 2.8% .)

In the first half of 2011, Verizon’s capex totaled $8.9 billion, compared with $7.6 billion in the first half of 2010, because of projects like the massive nationwide rollout of LTE. Nonetheless, CFO Fran Shammo said on Friday's earnings call that he expects spending for the year to be similar to the $16.5 billion total in 2010.

"You should see that decline coming in the second half of this year," the CFO said on the call.

Analyst George Notter at Jefferies & Company Inc. suggests in a research note Friday that this might indicate a mild slow-down in 3G EVDO network spending for the operator later this year:

    The company commented that network spending on 3G was well ahead of capacity requirements for the year, and 4G LTE spend was slightly ahead of requirements. Management specifically cited a second-half pullback in EVDO spending, due to the acceleration of EVDO build-out during the first half of the year. This doesn’t surprise us – Verizon’s EVDO spending has historically been front-end loaded. In recent years, the company has surprised to the upside with their Q3 and Q4 EVDO spending. While we find it reasonable to think that EVDO spending might see a slight pullback for 2H’11, we think it’s relatively unlikely that it would pullback significantly (or stop).

Verizon now has 102 4G LTE markets up and running, making it easily the largest next-generation mobile broadband provider in the U.S. Shammo reiterated on the call that the operator should have 175 towns and cities -- if not more -- up on 4G by year's end.

By contrast, AT&T Inc. (NYSE: T) plans to have five live LTE markets later this summer, with 15 up by the end of this year. AT&T plans to up its spending on LTE, however. The operator said Thursday that it expects capital expenditure to be up to $20 billion in 2011, close to $1 billion more than originally expected. (See AT&T Ups Capex to $20B to Develop 3G & LTE.)

LTE devices of all stripes are becoming an important part of Verizon's product mix. Verizon Wireless sold 1.2 million 4G LTE smartphones and Internet data devices during the second quarter, compared to 2.3 million 3G iPhones activated. (See Verizon CEO: We Expect iPhone 5 in the Fall.) There are now three LTE smartphones, a MiFi hotspot and a data card on the new network, with "more smartphones, tablets and data devices in the pipeline," Shammo promised.

In fact, Verizon's first LTE tablet, the Samsung Electronics Co. Ltd. (Korea: SEC) Galaxy Tab 10.1, could arrive on the network before the end of the month. (See Where Are the LTE Tablets?)

The kicker for early adopters of Ma Bell's LTE technology is that they won't be able to use Verizon's 700MHz devices on the AT&T network and may not even be able to roam onto Big Red's much larger LTE footprint. (See AT&T Building Islands of LTE in 2011 for all the gory details.)

In a nutshell, the two carriers will occupy slightly different areas of the 700MHz band -- with AT&T on the B- and C-Bands ("Class 17") and Verizon solely on the C-Band ("Class 13") -- and early devices might not have radio support for both classes. Even if the RF issue is sorted out, the carriers aren't saying yet if they have a roaming deal in place.

— Dan Jones, Site Editor, Light Reading Mobile

joset01 12/5/2012 | 4:58:13 PM
re: Verizon Upped LTE Spending in 1H'11

Mr Notter at Jefferies and Company suggests so...

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