Tuesday, August 24, 2010

$4B Cut in Verizon, AT&T Wireline Spending

Analyst Dan Burstein is a smart guy. He's taken a look at Verizon and AT&T capital spending and finds Verizon's wireline capital spending in the first six months of 2010 was $3.35 billion, down nearly $1billion from last year.

The numbers at AT&T are similar, he guesses. AT&T cut U-Verse spending by a third last year.

Dan says lots of carriers reduced capital investment in hopes the broadband stimulus funds could be used, instead of their own capital. That's undoubtedly true in many cases, but likely not for AT&T and Verizon, neither of which, as far as I can tell, applied for any funds.

Some of us might suggest other, entirely rational reasons for why that lower rate of investment might be happening.

A rational executive looking at where growth prospects are highest would logically conclude it lies in wireless, not wireline services. A rational investor might argue the returns are higher overseas than in the U.S. market.

A rational executive might conclude that users screaming for better mobile coverage for their iPhones have a valid point, and that investment has to be targeted in better facilities where those congestion problems are occurring.

Investment analysts for years have been pointing out that financial returns from fiber-to-customer investments do not appear high enough to justify too much investment. Analysts have pounded cable executives for years on that score, frowned on Verizon's fiber-to-home approach and generally have concluded that a less-intensive investment approach makes more sense.

One might argue that reasons such as those are substantial enough for prudence on the wireline investment front, without any need for nefarious motives.

One might also reasonably conclude that firms such as Verizon have concluded the financial return from such upgrades will in fact not provide a payback that is reasonable, leading to divestiture of rural lines and customers.

All of that lies within the realm of a normal strategic review of expected financial returns from capital investments, not to mention the need to raise cash for spectrum acquisitions and then construction of new fourth-generation networks.

Nobody has abundant and extra capital laying around, these days. Hard choices have to be made, and who could fault an executive for concluding their firms would do better shifting capital into the wireless network and services?

We might all agree on the facts, though we might disagree on how to explain the facts. 

No comments:

When Better Broadband Might Not Help

The Wisconsin Economic Development Corporation, in detailing the impact of the Covid-19 pandemic on various sectors of the Wisconsin economy...