Verizon Wireless (NYSE: VZ) and T-Mobile US (NYSE:TMUS) have been spending capital on wireless network enhancements at a fairly steady clip, while AT&T Mobility (NYSE: T) and Sprint (NYSE: S) have hit some snags in their capex spending, though the outlook for next year looks better, according to a report from financial analysts.
In a detailed research report, Jefferies analysts George Notter, Ali Hushyar and Norah Kennedy dissected the North American capex market, primarily with an eye for what it means for several vendors. "Not surprisingly, our checks suggest that the capital spending environment remains somewhat soft overall," they wrote. "The outlook for early next year is much more hopeful however."
Representatives from Verizon, Sprint and T-Mobile did not immediately respond to requests for comment on the report.
The report, citing unnamed sources in the industry, said that Verizon "seems to be a much smaller point of conversation" among the contacts the analysts reached out to. "Anecdotally, our industry contacts also support the notion that Verizon remains consistent about capital investments in their business," they wrote. "On the wireless side of the network, they're continuing the transition from a coverage-focused LTE build to a capacity-focused deployment. Our contacts noted that Verizon is also doing a lot of DAS work right now--spending there is very aggressive right now."
That description would fit with what Verizon Communications CFO Fran Shammo said at investor conference in August. At the event, Shammo said the carrier expects to be finished with its AWS spectrum deployment by the end of this year, and would then turn its focus to deploying small cells and Distributed Antenna Systems to densify its network. Verizon said in September it had deployed AWS spectrum for LTE in 400 of its 500 LTE markets.
Regarding T-Mobile, the analysts said they have been told that the carrier is "going strong" with its 700 MHz A Block LTE overlay. "Another contact indicated that T-Mobile was tracking above plan," they wrote. "In aggregate, T-Mobile seems to be a very consistent capex spender. Moreover, they have followed up on their commitment to invest in the network despite the various M&A possibilities that they've swirled around them in recent months."
T-Mobile has been busy buying up 700 MHz spectrum, and CTO Neville Ray has said the carrier has already deployed the spectrum in "some key cities." Further, T-Mobile is moving ahead with plans to add in more 1900 MHz LTE coverage and deploy 4x2 MIMO technology on its network.
At Sprint, the Jefferies analysts wrote that they are hearing that "spending trends are also slow" and that there are several issues holding up the operator's capital investment. "First, they're going through reorganization on the networks side of the organization. Specifically, we understand that a number of senior executives have left the company," they wrote. "Similarly, they are re-organizing from a centrally-managed Networks organization based in Kansas City to a model featuring three regionally-managed units. The organizational structure around this change is still being ironed out--we suspect that it's a cause for the slow spending trends they're experiencing right now."
Earlier this year, longtime Sprint network executives Steve Elfman and Bob Azzi announced plans to leave the company and have since done so. John Saw became Sprint's chief network officer working alongside CTO Stephen Bye. More recently, Sprint indicated it would be cutting positions of workers on its networks and IT teams who had been working on the carrier's Network Vision network modernization project.
Separately, the Jefferies analysts said they were told that Sprint has shifted its supply chain logistics and material management efforts to an unnamed, third-party organization that originally helped Sprint with kitting and color-coding wireless equipment before it gets deployed on towers. "We understand that that organization has struggled to ramp up the throughput of materials into Sprint sufficiently," they wrote.
Elsewhere, the analysts said they were told that Sprint has been experiencing some technical issues with some of the 2.5 GHz radios the carrier is deploying, presumably a reference to Sprint's 8T8R radios. "While spending/deployment trends have slowed at Sprint, we understand that they remain very active internally with respect to network planning efforts," the analysts wrote. "Moreover, there remains a significant sense of urgency--presumably motivated by their new SoftBank ownership. Looking forward, our industry contacts generally expect that Sprint will ramp their pace of spending back up at some point."
Sprint still plans to deploy its 2.5 GHz spectrum on a nationwide basis but is going to change its approach to how it rolls out the spectrum to be more targeted on congested points of its network and in specific key cities, CEO Marcelo Claure said recently.
As for AT&T, there are reports of sluggishness in wireless capex spending at the operator, the analysts wrote. One reason is that AT&T's Turf 3.0 RFP and vendor selections are just getting implemented, while another is that AT&T has had "significant dislocation among the senior management team for the network infrastructure--a number of key people have taken severance packages and left."
AT&T announced in early September that Kris Rinne, senior vice president of network technology for AT&T Labs, will retire at the end of November. Rinne will be succeeded by Tom Keathley, who has been appointed senior vice president of network and product planning.
The Jefferies analysts noted that the "Turf" vendors are the professional services organizations that are responsible for installing wireless equipment on towers on behalf of AT&T. "With their Turf 3.0 process, they've consolidated from 27 different turf vendors to 15," they wrote. "Naturally, the remaining Turf companies will require some time to reset their logistics/supply chains for any new areas they've been awarded."
The analysts added that AT&T is deploying fewer new cell sites this year while upgrading more existing sites for RF carrier additions, and that AT&T has pulled back from deploying DAS systems.
"In total, we think these efforts are geared to stretching the capital budget further from a capex efficiency perspective," they wrote. "Looking forward, our contacts are in collective agreement that AT&T's spending trends should rebound significantly in Q1'15. A new capex budget should remove internal spending pressures. Competitively, they have some very strong incentives for continuing their LTE deployment. Also, our contacts noted that AT&T--internally--remains very active with network planning work right now."
AT&T spokesman Mark Siegel said the company invested $11.8 billion into its wireless and wireline network in the first six months of 2014. He said the carrier confirmed in July that it expects to spend a total of around $21 billion this year on its network. "We can't provide any detail around our third-quarter investment ahead of earnings next week, but this expectation is driven in part by the fact that we've completed our VIP 4G LTE build target to cover more than 300 million people," he told FierceWireless. "And keep in mind that we do business with hundreds of vendors, and in a capital program as large as ours, our spend with individual vendors varies in the normal course of business. We can't speak to what any individual vendor expects we'll spend with them."
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