T-Mobile, AT&T and Verizon maintain capex spending despite incentive auction

Some analysts have speculated over the last year that U.S. carriers would cut capex in early 2016 in advance of the upcoming incentive auction of prized 600 MHz spectrum. But first-quarter earnings reports from Verizon, AT&T and T-Mobile indicate that may not be the case.

T-Mobile this week reported a capex of $1.3 billion during the first quarter, significantly surpassing the $1.1 billion expected by UBS analysts. The move caused a drag on T-Mobile's free cash flow -- a key metric for the company -- but the carrier said it actually increased spending early in the year to leverage its spectrum as quickly as possible.

"Cash capex was approximately $350 million more front-end loaded this year due to our aggressive 700 MHz A Block rollout," CFO Braxton Carter said during an earnings call with analysts. "This is just a timing issue, which we will normalize in the course of the year."

AT&T, meanwhile, reported a total capex of $4.7 billion during the quarter, up 17.6 percent year over year. Wireless capex was down slightly from the fourth quarter, the carrier said, only because it "accelerated purchases of equipment to capture significant savings" late last year.

AT&T's capital spending on wireless was roughly $2.2 billion over the last two quarters, but that sum doesn't include "shared infrastructure" such as installing fiber used both for cellular connectivity and for wireline services. And AT&T said its move to virtualization and software-defined networks is already paying dividends: "We will be adding 2.5 times more capacity at 75 percent of the capital costs compared to just a few years ago," CFO John Stephens told analysts on the earnings call.

Finally, while Verizon's quarterly capex declined 9.5 percent year over year to $2.2 billion, the operator said last year's figures were skewed due to hefty investments late in the year to boost coverage in advance of the Super Bowl. The nation's largest mobile operator is "right on track" with its plans to densify its network throughout 2016, CFO Fran Shammo said.

"First, on the capex, there's some timing here and the reason for that is because, if you look at it, in the fourth quarter of last year we really accelerated our spend in wireless to prepare for the Super Bowl. And that was a whole densification project on the West Coast around San Francisco and Santa Clara," Shammo explained on an earnings call. "We are still deploying a lot of small cells, so there is nothing that I'm going to say here that should concern you about our plans. You will see us catch up on that spend in the second and through the third and fourth quarter, so coming in right on guidance."

The FCC is expected to begin the "forward" portion of its incentive auction of TV broadcasters' unwanted 600 MHz licenses in the coming weeks. Analysts at Wells Fargo have predicted that AT&T will spend as much as $10 billion during the forward auction, which is expected to begin in the next few months. T-Mobile will spend as much as $8 billion, Wells Fargo analysts said, and Verizon will limit its bids to $5 billion. (Sprint is the only major carrier that won't participate in the auction.)

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Crown Castle sees strong potential in small cells -- American Tower and SBA, less so
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