In another sign that growth in telecom-equipment spending is slowing,
AT&T's (T Quote - Cramer on T - Stock Picks) president of network planning says the company's capital spending in several areas next year, including data networking gear, will "level off."
AT&T has been mum on how much it plans to spend next year. But the executive, Frank Ianna, told
TheStreet.com that the company's network buildout is slowing for the first time. That has some observers saying AT&T won't match in 2001 the $14 billion it expects to spend this year.
More likely, AT&T will spend around $13 billion, says an analyst with a major Wall Street firm who asked not to be identified. Though $1 billion is a relatively small difference, it supports the observation that the era of soaring spending is coming to an end. AT&T spent around $12 billion on capital projects last year.
The slowdown comes as Wall Street has suddenly cooled to what had been its hottest sector, telecom-equipment stocks. Two years of breakneck equipment spending by network builders like AT&T pushed networking stocks to breathtaking heights. But with the
Nortels (NT Quote - Cramer on NT - Stock Picks) and
Ciscos (CSCO Quote - Cramer on CSCO - Stock Picks) of the world priced for perfection, investors are now taking heed of an apparent pullback in network-equipment spending and selling these stocks, as
TheStreet.com documented Tuesday.
Changing Face
"It's fair to say you'll continue to see change in the complexion of spending," says Ianna. "Other than increases in [Web] hosting space, we're at the point where we'll be leveling off."
Big Spenders
Top five telcos in projected 2000 capital outlays. |
| Company | Projected 2000 outlay ($billions) |
| Verizon (VZ:NYSE) | $16 |
| AT&T (T:NYSE) | 14 |
| SBC (SBC:NYSE) | 13 |
| Qwest (Q:NYSE) | 9 |
| WorldCom (VZ:NYSE) | 8 |
| Source: Companies, analyst reports. |
AT&T was off 38 cents Wednesday at $30.38. It and other big telcos, such as
WorldCom (WCOM Quote - Cramer on WCOM - Stock Picks) and
Sprint (FON Quote - Cramer on FON - Stock Picks), have seen their stock price cut in half amid slowing revenue growth and increasing capital-spending demands.
Ianna said wireless spending will probably increase slightly next year from the estimated $4 billion that AT&T spent this year. And cable spending will depend almost entirely on how well the company sells its cable modem Net access, TV and phone service and how effectively the company can hook up customers.
Offering free phone-over-cable service may kick start the program, but logistics and labor will be the limiting factors, not cash.
Changing Face
That changing face spells an unmistakable slowdown, says the unnamed analyst. "There are certain segments within AT&T where they will spend more, but on the whole AT&T's total spending will probably be down," he said.
Clearly, with its efforts to overhaul more than a third of the nation's cable systems, AT&T spending this year may have peaked. But as the No. 2 equipment spender in the country, any changes in its spending habits could have a disproportionate effect on the market.
And as industry observers point out, bad news for the equipment makers may mean good news for AT&T as it enters the selling phase of its turnaround.
Scott Moritz
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