AT&T Goes for Broke. Who Wins?
So by now you've heard the news. On Wednesday, AT&T (NYS: T) announced a plan to boost capital spending to $22 billion per year over the next three years as it makes improvements in both its wireline and its wireless services.
In addition to "maintenance capex" (spending needed to keep existing equipment in good working order) of approximately $8 billion annually, AT&T said it will spend $8 billion on expanding its wireless network, and $6 billion more on wireline, so $14 billion in total "expansion capex."
Planned expansions include rolling out fiber-optic cable to an additional 1 million business customers, enabling high-speed Internet access for 75% of its customer base. LTE capability for smartphones will cover 300 million potential customers by the end of 2014, and U-Verse phone, Internet, and TV service will expand by a third, covering 43% of the customer base by the end of 2015.
Now, what does all this mean to you?
For AT&T shareholders, it's time to get comfortable being deeper in hock. Management confirmed that making all these upgrades is going to require going deeper into debt. The company will be floating new bond issues, and estimates that by early 2014, its debt-to-EBITDA ratio will rise to as high as 1.8, versus its 1.4 ratio today.
Shareholders of telecoms other than AT&T may want to steel themselves for the same. AT&T's expansion of LTE and U-Verse poses a direct challenge to Verizon (NYS: VZ) and FiOS. To a lesser extent, Sprint Nextel (NYS: S) is going to get caught up in this infrastructure arms race as well.
AT&T's spending increase works out to about 16% over estimated capital capex for 2012. This extra loot could be a lifesaver for struggling telecom equipment makers such as Alcatel-Lucent (NYS: ALU) and Ciena (NAS: CIEN) . Alcatel, for example, derives about 10% of its total annual revenues, globally, from Ma Bell. In response to the news,
Ciena shares leapt nearly 10% in Wednesday trading. Alcatel, flat for most of the day, gained 1% after hours.
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The article AT&T Goes for Broke. Who Wins? originally appeared on Fool.com.Fool contributor Rich Smith has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.