Preparing for the Unknown in Telecom Budgeting

The amount of money a telecommunications company invests in its infrastructure always is predicted. But, in reality, it is determined by factors outside its control and unknown during the budgeting process. While the intentions of a company are important to note, the dollar figures must be taken with a grain of corporate salt.

That said, at least one carrier has unveiled an aggressive plan. Lightwave Online reports that AT&T’s Project Velocity will spend $14 billion during the next three years on top of existing capex spending. The total amount of investment, the story says, will be $22 billion in each of the next three years.

The spending will be on wireline and wireless:

AT&T expects its 4G LTE network to cover 300 million people in the United States by the end of 2014, and about 250 million people by the end of next year. Meanwhile, the wireline investment will expand its IP network to 57 million customer locations (including consumers and small businesses), which is 75 percent of all customer locations in its wireline service area, by year-end 2015. The company plans to use its 4G LTE capabilities to deliver high-speed broadband services in areas where it believes it is not “economically feasible” to upgrade its wireline network to the level local competition will require.

Today is Veterans Day, so it is appropriate to cite the famous quote from a Prussian army biggie that “no battle plan ever survives first contact with the enemy.” In this case, the enemy is the unknown. One thing that is known about the unknown is that it always will be there. That sounds like gibberish, but it’s not: There always are important political, economic and related issues in the future that reveal themselves in their own time.

One of those unknowns, for instance, revealed itself last Tuesday. The carriers now know that they will be dealing with a Democratic Federal Communications Commission for the next four years. Another unknown — and this was a true unknown — occurred the week before when much of AT&T’s infrastructure — and other carriers’ as well — was shredded in the most densely populated metroplex in the country.

The next unknown — and this is a known unknown, so to speak — was addressed by AT&T CEO Randall Stephenson. In The New York Times’ coverage of the carrier’s investment plan — which strangely didn’t use the term Project Velocity — Stephenson pointed to the uncertainty over the fiscal cliff negotiations:

He faces other worries, too. Mr. Stephenson argued that the uncertainty over the expiration of the Bush-era tax cuts and the potential reduction in government spending that could stem from automatic budget cuts set for year-end — was a bigger threat to his business and his customers.

The outlines of an eventual deal will certainly directly and indirectly impact how much carriers spend. Despite this, AT&T seems committed to spending $66 billion during the next three years. Either AT&T indeed is committed no matter what happens in Washington or elsewhere, or it has built in wiggle room that somehow is not making it into press reports.

Last month, Seeking Alpha posted a piece that said Verizon had reduced capex due to reduced competition between major carriers. However, it suggested that Softbank investment in Sprint may reverse that trend. Thus, another unknown — competitive moves by other companies — is also quite likely to upend expectations.

Clearly, carriers are going to spend a lot of money. It is important, however, to understand that pronouncements on precise amounts almost certainly are subject to change.