Investor Updates: What's the Latest from AT&T?

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Investor Updates: What's the Latest from AT&T? PART 1 OF 10

What Are AT&T’s Capex and Free Cash Flow Plans in 2017?

AT&T is spending large on capex

In this series, we’ll look at AT&T (T), which has been investing heavily in capex to improve its network and buy additional spectrum for future use. AT&T has spent $6.0 billion on capex in 1Q17 as compared to $4.7 billion in 1Q16 as it continues to focus on integrated wireless and wireline business services.

During AT&T’s recent 1Q17 earnings conference call, management stated, “We had improved working capital and lower tax payments in the first quarter and chose to reinvest those efforts in the business.”

What Are AT&amp;T’s Capex and Free Cash Flow Plans in 2017?

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AT&T is focusing on an SDN (software-defined networking) approach to transform its network. SDN helps telecom companies save costs and provide more flexibility, as this approach requires them to virtualize its networks instead of spending on dedicated fixed hardware. AT&T’s management believes that penetration of SDN will reach 55% by the end of 2017, and expects it to reach 75% by 2020.

Expected capex investment in 2017

AT&T is expected to spend approximately $22 billion on capex in 2017. By comparison, competitor Verizon (VZ) expects capex to be in the $16.8 billion–$17.5 billion forecast range for 2017, whereas T-Mobile (TMUS) forecasts cash capex for the full-year 2017 in the range of $4.8 billion–$5.1 billion excluding capitalized interest. Meanwhile, Sprint (S) expects its cash capex to be in the range of $3.5 billion–$4.0 billion in its fiscal 2017 excluding the impact from leased devices sold through indirect channels.

Additionally, AT&T expects the proposed acquisition of Time Warner (TWX) to be accretive on a free cash flow (or FCF) per share basis in the first year after the close of the acquisition. Also, AT&T has deleveraging potential within the first year of closing the deal given the attractive FCF of the combined companies. FCF is estimated to be approximately $18 billion in 2017.


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