AT&T & Verizon Are Stingy on Capex, Despite 5G Deployments
While AT&T and Verizon promise to expand their nascent 5G networks, the operators are also reporting capital expenditure (capex) lower than some analysts had expected.
However, many factors go into capex, so it's difficult to determine whether the operators are slow-walking their 5G buildouts or if they're simply reducing spending in other areas.
Indeed, that question was put directly to the CEO of SBA Communications, one of the nation's three biggest cell tower companies. He said there's nothing to worry about in 5G.
Asked whether AT&T's capex reduction could affect his business, Jeffrey Stoops responded, "No." According to a Motley Fool transcript of his comments during SBA's quarterly earnings conference call, he said that overall wireless network operator spending would "really pop" next year, after the proposed merger between Sprint and T-Mobile reaches some kind of definitive conclusion.
Nonetheless, Wall Street investors have made note of a reduction in capex across both wireless and cable operators.
"Comcast and Charter missed 3Q expectations for capex and guided 2019 lower than previously planned," wrote the analysts at Nomura's Instinet in a recent note to investors. "We have lowered our combined 2019 capex forecast for Comcast and Charter from $14.6 billion to $14.2 billion."
And AT&T -- which is building out a 5G network in millimeter-wave spectrum in parts of roughly two dozen cities, with plans to expand that next year -- surprised Wall Street analysts with a significantly lower-than-expected capex for 2020. The operator said it expects to spend around $20 billion on capex next year, which is way down from the $23 billion it expects to spend this year and the $22 billion that most Wall Street analysts had expected AT&T to spend in 2020.
The reduction was such that the analysts at Wall Street research firm Cowen lowered their capex forecasts for AT&T to roughly $19 billion in 2021 and 2022, a decrease from their previous forecast of around $21 billion.
As Walter Piecyk of LightShed Partners noted, AT&T said its reduced capex is mostly due to the fact that the operator finished its fiber-to-the-home buildout and its wireless network upgrades in Mexico.
AT&T executives addressed the operator's capex reduction during its quarterly conference call with investors, boasting that the company can now focus on improving its margins rather than expensive fiber construction projects. But they did acknowledge AT&T will continue spending money on new spectrum licenses when necessary, as well as on fiber and 5G equipment.
As for Verizon, the operator said it spent $4.4 billion in capex in the third quarter, which the analysts at Nomura's Instinet said was roughly $100 million below most Wall Street expectations. But the analysts noted that Verizon still expects to spend between $17 billion and $18 billion in capex throughout 2019, as it previously said it would do -- and the analysts expect that figure to remain relatively constant throughout 2020 and 2021.
The real challenge here is that operators' capex can cover a wide variety of technologies and products, from fiber to 5G, so it's difficult to ascertain whether operators are pulling back from 5G or whether they're simply moving spending from one thing to another. After all, both Verizon and AT&T have boasted that their gradual move to network functions virtualization (NFV), software-defined networking (SDN) and automation will ultimately cut costs out of their networking budget.
Regardless, SBA's Stoops believes 5G will garner an increasing share of wireless network operators' capex. "Initial 5G investment is under way and we believe we are at the very beginning of a long 5G deployment cycle," he argued.