AT&T’s CAPEX Could Increase in Short Term

Implications: 1.      An important priority for AT&T is to manage expectations very carefully. 2.      The carrier has to be concerned about being too optimistic about equipment CAPEX during an economic slowdown – because it could be interpreted negatively – that despite the negative pressures on the company, it is still being forced to spend. 3.      However, if AT&T is overly pessimistic on CAPEX outlook, it could be seen as the carrier overly suffering from the downturn in the market.

Analysis:  In prognosticating expenditures at “a slightly lower level,” it avoids the industry leaping to either extreme as mentioned in the key implications.  Barring a major downturn in the economy, it is hardly out of the question that there will be a net increase in AT&T’s CAPEX the rest of this year and perhaps even further out.  The apparent hope at AT&T is that by exceeding anticipated expenditure levels, the service provider can use that to demonstrate that it is executing effectively in the market.  

AT&T is making it clear that it is not going to decrease spending on the growth sides of its business.  One can anticipate even more expenditure in the mobility area -- and U-verse, at least for now, seems to be untouchable.  In terms of the older technologies, AT&T appears to be only buying just enough to adequately maintain those portions of the network – while at the same time looking to transition the network to IP and other newer solutions.  It can be reasonably expected that actual IP service orders will be rolled out promptly.  But if there is heavy demand for IP expected in the next year or so in a particular office – it would not be shocking if those kinds of expenditures could be delayed.