Amid 5G rollout, Verizon reduces spending on network

Verizon said it will spend less on its network this year than it expected to. Specifically, the operator said it now expects to spend a total of between $16.8 billion and $17 billion on its network during the course of 2018—that range is down notably from the $17 billion to $17.8 billion the operator said at the beginning of this year it expected to spend during 2018.

“This reflects the benefits from our business excellence program which has allowed us to make all of the planned investments while aggressively advancing the 5G ecosystem and transforming our structure to deploy the intelligent edge network,” Verizon CFO Matt Ellis explained during the operator’s quarterly conference call with analysts this morning. “This architecture will provide both capex and opex efficiencies compared to the networks of the past. The net result of cash flow from operations and capital spending is $14.2 billion year to date.”

In response to a number of questions from analysts about the reduction, Ellis said Verizon’s network build-out efforts—which stretch across small cells to 4G to 5G to fiber—have been more efficient than the carrier initially expected.

“This really started a year ago when we reorganized the network organization and we're seeing the benefits from the changes in how we run that organization,” Ellis said, noting that Verizon is now using new capacity utilization models and is benefiting from changes to its inventory management system and the adoption of new procurement analytical tools. “We are getting everything done that we wanted to get done, we're just doing it more efficiently than we originally expected to.”

Ellis reiterated that Verizon would work to remain consistent with its capex spending, and that the company would provide its 2019 capex expectations in January of next year. “I think you’ll see capex stay within reasonable bounds of what you've seen from us in the past,” he said.

Further, Ellis said that much of Verizon’s current 5G build-out efforts leverage a lot of the work the carrier has already done in terms of densifying its network via small cells. "5G already uses a lot of the assets we already have in place,” he said. “We will continue to look for ways to build the network that we want to build to provide the best customer experience but doing it at the lowest possible capital intensity."

Verizon’s capex reduction is just one element of many cost-cutting efforts at the operator. For example, Verizon is also working to hasten the departure or retirement of up to 44,000 employees.

Nonetheless, Verizon’s capex reduction comes as a surprise to many. After all, Barclays in February said it expects capex among the “big four” (Verizon, AT&T, T-Mobile and Sprint) to rise by 10% this year, which it said would be the largest increase in the past five years. And in June the analysts at Oppenheimer raised their capex forecasts for Verizon by 2% to fully $18.2 billion for 2018.

AT&T, for its part, said earlier this year that it expects to spend up to $25 billion this year in capital expenses. AT&T reports its third-quarter results tomorrow.