AT&T (News - Alert) CFO Richard Lindner said during the company's earnings call that capital expenditures probably would be reduced by “hundreds of millions of dollars” in the second half of 2008 compared to the first part of the year. News of that sort can set off alarm bells as suppliers try to figure out what it means. Keep in mind that represents what Lindner calls "a slightly lower level."

 

Might capital spending be slowing not just for AT&T but for the industry as a whole? Might AT&T be getting ready to change strategies? Questions such as those get asked because telecom industry capital spending, though relatively fixed year-over-year on a long-term basis, tends to fluctuate in cycles.

 

The cycles vary a bit more than they used to because most analysts track cable industry capital spending as part of overall communications spending, and cable capital spending has tended to be driven by construction booms in the past. These days it is more likely the case that spending is driven by customer premises equipment.

 

Since about 2003, CAPEX has been rising. That sometimes means CAPEX will hit a declining stage in a year or two, as projects are finished. But it is hard to tell these days, as more CAPEX goes into premises equipment for video and other data services. Since 80 percent or so of overall CAPEX is spent in the access network, that often means trading off plant for CPE. But the industry also is in a heated competitive state these days, so new requirements can erupt suddenly.

 

Still, in all likelihood, the explanation for the AT&T slowdown is as simple as good weather in the first half of the year allowing AT&T to get ahead of schedule on its U-verse deployments, for example.

 

AT&T will continue spending money on building out its U-verse offering and its third-generation wireless networks, Lindner told analysts.

 

The company expects capital spending, which includes expenditures for new equipment, to be in the mid-teens on a percentage basis of revenue for the year, which last year totaled $118.9 billion. That is consistent with guidance AT&T first gave in December, 2007, suggesting that AT&T might have spent more in the first half than it planned to take advantage of the better weather. A reduction in the second half of the year would simply bring the company back in line with its whole-year goal.