AT&T Wireless Says It's Slashing Capital Spending By 40%; Industrywide
Revenue Down; Firm must convince people to buy GSM phones rather than older TDMA models
Investor's Business Daily
January 29, 2003
BY REINHARDT KRAUSE
AT&T Wireless Inc. will hit the brakes on capital spending in 2003 as the mobile phone industry's revenue growth slows.
The nation's third largest carrier with 20.86 million subscribers, AT&T Wireless says it'll slash network spending in 2003 about 40% to $3 billion.
AT&T Wireless said it expects industry revenue, as well as its own, to grow 5% to 7% in '03. That's down from about 10% growth in '02 and 17% in '01, says market researcher Yankee Group. John Zeglis, AT&T Wireless chairman and chief executive, says the carrier still plans to invest in new services.
"We're not in harvest mode in a flat industry," he told an analyst meeting in New York Tuesday.
AT&T Wireless shares closed Tuesday at 6.40, down 4%.
By cutting capital spending, the carrier expects to become free cash flow positive in 2003. That's cash flow from operations minus capital spending. It's a yardstick used in capital-intensive industries in which few firms report net earnings.
In 2002, AT&T Wireless reported a net loss of $2.32 billion on revenue of $15.63 billion. Sales rose 14.8% from 2001.
AT&T Wireless said it wouldn't estimate how many subscribers it will add in 2003. Its customer base grew 15.6% to 20.85 million in 2002, including subscribers acquired through the purchase of TeleCorp. Inc.
Zeglis says AT&T is upbeat about long-term subscriber growth and new revenue from wireless data services. However, the firm is clearly growing more cautious about making huge investments, analysts say.
Zeglis no longer expects to use more than 20% of AT&T Wireless' revenue for capital spending. It ponied up 31% of sales on network upgrades in 2002.
Weak demand for wireless Internet services is one reason for AT&T Wireless' pragmatic outlook.
"Truth be told, all the hype caused a lot of us (carriers) to plan technology upgrades that were separated by months, not years," Zeglis told analysts. That's not enough time for carriers, software developers or equipment makers to get a proper return on investment, he says.
In 2002, AT&T Wireless began building a digital network that uses global system for mobile communications, or GSM, technology.
AT&T Wireless built its GSM system alongside its older network, which uses time division multiple access, or TDMA, technology. In many markets, AT&T Wireless sells mobile phones that use either GSM or TDMA airwaves.
However, AT&T's marketing challenge is getting more people to buy GSM phones instead of older TDMA phones. AT&T Wireless isn't being specific about how many GSM customers it signed up in 2002.
"It's in the hundreds of thousands, rapidly approaching 1 million," said spokesman David Caouette.
The problem is that AT&T Wireless must use part of its capital spending to support TDMA customers even as it expands the reach of GSM, analysts say.
AT&T Wireless' GSM services are available in two-thirds of the nation's biggest markets. The GSM network will operate in 85 of the top 100 U.S. cities by year-end.
However, many customers still prefer TDMA phones because they can be used in big cities, smaller markets and rural areas, analysts say.
Zeglis said AT&T Wireless expects to finish a software upgrade to its GSM network by the fourth quarter. At that point the system will whisk data and Web content at average speeds two or three times faster than those of dial-up phone networks.
AT&T Wireless recently scaled back plans to launch a more advanced system once the GSM build-out is completed.
In late 2000, Japan's NTT DoCoMo paid $9.8 billion for a 16% stake in AT&T Wireless. Together, they targeted wireless Net services.
AT&T Wireless now plans to roll out DoCoMo's technology in only four cities next year -- San Francisco, Seattle, Dallas and San Diego -- instead of the 13 originally planned.
AT&T Wireless must meet its commitment to roll out Universal Mobile Telecommunications System, or UMTS, in those four markets or it might be forced to buy back its own stock from DoCoMo for the original purchase price plus interest.
==========
Zeglis said AT&T Wireless expects to finish a software upgrade to its GSM network by the fourth quarter. At that point the system will whisk data and Web content at average speeds two or three times faster than those of dial-up phone networks.
Ahhh EDGEfantasies.... LOL!
What happens when they pop?
Is Zeglis sweating that he was promised commercial EDGEfantasy handsets last year? |
