Management’s guidance of low capital investments
In the last part of this series, we learned that AT&T (T) started its Project Velocity IP, or VIP, program in 2012 to upgrade its wireless and wireline broadband infrastructure. Since 2013, it invested significantly in its network to meet its Project VIP goals.
According to an SEC filing, in November 2014, AT&T expects its annual capital expenditure, or capex, during 2014 to be similar to the capex in 2013. As a result, AT&T’s 4Q14 capex should decline sequentially and year-over-year, or YoY.
As you can see in the above chart, in 9M14, AT&T spent $17 billion in capex. AT&T expects to add $4 billion in capital expenditures in 4Q14. This translates to a 23% sequential decline and 27% decline from 4Q13.
AT&T’s guidance on expected capital investments
AT&T expects lower capital expenditures after 2014. The company believes that 2014 will be the peak year of investments in its network. Project VIP achieved most of its milestones by the end of the year. The company plans to spend $18 billion in capital expenditures in 2015. It will continue to invest in its infrastructure. It will invest at a normalized rate equivalent to 15% of its service revenue after 2014.
Investors can get diversified exposure to AT&T by investing in the Technology Select Sector SPDR Fund ETF (XLK). It had an ~4.3% holding in AT&T.
Also, investors can get a larger 23% exposure to AT&T in the Vanguard Telecommunication Services ETF (VOX).
If you want to get greater exposure to both of the largest US telecommunication companies—AT&T and Verizon (VZ)—you can invest in the iShares U.S. Telecommunications ETF (IYZ). The ETF held a total of 33% in both of these companies at the end of 3Q14.