AT&T Project VIP "Ahead of Schedule" But Is Capex Ahead of Schedule?

Project VIP, AT&T’s program to upgrade its network infrastructure, is “ahead of schedule,” AT&T says. 

Does that mean AT&T also has spent more than planned, less than planned, or is AT&T shifting capital to new projects? It is hard to say.

Some might note that what AT&T touts is Long Term Evolution and fixed network access to business locations, not consumer upgrades.

AT&T Project VIP progress is said to include a 4G LTE network that now covers nearly 290 million people, and a Project VIP broadband build “expected to take fiber to more than 400,000 new business customer locations by the end of the second quarter.”

Notably absent is any statement of progress in the consumer access area.

Some might point to estimates that AT&T’s capital investment was cut in May, primarily in the fixed network.

Others might note that AT&T capital investment also was light in the fourth quarter of 2013.

AT&T's fourth-quarter capital investment of $5.38 billion came in below Wall Street's estimate of $5.62 billion and Raymond James' $5.66 billion estimate.

The downside was driven by weak mobile capital investment representing a double-digit percentage decline year-over-year and high-single-digit percentage decline sequentially.

On the other hand, fixed network investment was also below expectations, yet grew year-over-year.

It isn’e yet clear whether AT&T is slowing temporarily because it really is “ahead of schedule,” or whether there might be an actual slowdown planned.

AT&T forecast 2014 capex of about $21 billion, up from its prior $20 billion. The Raymond James 2014 capex estimate for AT&T increased to $20.9 billion from $20.4 billion, while the Street currently predicts investment of $20.3 billion.

On a sequential basis, first-quarter 2014 estimated capex declined 16 percent. Analysts had projected an acceleration in the first half of 2014, compared to the first half of 2013. Any slowdown in May might, or might not, be reflected in those half-year forecasts.

It is possible AT&T wound up spending more than planned earlier in 2014. But it might be possible that priorities have shifted a bit, with AT&T spending more on Project Agile, AT&T's effort to streamline its operations.

That could shift some spending to software and consulting and integration expenses, rather than network hardware,  in 2014.

The larger question is what could be happening globally.

With global CSP capital expenditures forecasted to total more than US$2.1 trillion from 2014 to 2019, a level that represents largely slowly-growing overall spending, Ovum expects careful spending on fixed network infrastructure.

By 2019, globla capex is projected to be US$367 billion, with fixed network investment constrained by tougher revenue growth in that segment, with possible growth of total network infrastructure spending of perhaps $50 billion, in 2019, over 2014 levels.

Keep in mind that the United States, China and Japan alone account for 45 percent of total global capital investment.

Other forecasts call for slightly declining or flat overall capex in the U.S. market between about 2012 and 2015, down from 2008 levels, according to Statista.

Infonetics forecasts capital investment growth of four percent in 2014.

Other firms have been even more bullish. Gartner has forecast global sales of network equipment to carriers rising six percent in 2014 to $85.4 billion, up from three percent growth in 2013.

Asia, excluding Japan, was predicted to grow seven percent, and Europe and North America six percent, according to Gartner researchers.

Dell'Oro analysts predicted 2014 capital investment growth of three percent, compared with two percent spending growth in 2013.

AT&T originally had forecast 2014 capex of about $21 billion, up from its prior $20 billion.

The Raymond James 2014 capex estimate for AT&T increased to $20.9 billion from $20.4 billion, while the Street predicted  $20.3 billion.

But Raymond James also forecast that on a sequential basis, first-quarter 2014 estimated capex would decline 16 percent. But Raymond James also predicted first-half 2014 spending would increase by three percent  over first-half 2013.

Whatever other service providers might be doing, actual AT&T investment plans might have slipped from original targets, shifted to different projects or might simply be ahead of quarterly or half-year targets.

It is likely too early to know for certain which explanation ultimately will prove correct.