Verizon Communication Inc currently leads in the mobile services industry. AT&T wants to address its aging rural phone lines, which still uses the now obsolete copper lines.
The upcoming upgrade, according to the company, will help drive revenue growth to allow it to open new opportunities like new wireless technologies to home security and cars.
The move is more attractive for the company rather than selling off the business or reducing the capacity of other networks. AT&T had previously considered selling some components of its rural phone lines.
Chief Executive Randall Stephenson said to analysts in a company event in New York: “This gives us the opportunity to improve our top-line growth and change our cost structure.”
The company shares fell 3 percent following the announcement.
“It’s a big number and it’s not just for one year,” analyst Todd Rethemeier from Hudson Square Research said.
Verizon Communications had decided to sell off its ailing rural phone lines ahead of AT&T. The latter is now forced to upgrade its rural lines because it could not find buyers, according to Rethemeier.
Jonathan Chaplin, an analyst from New Street Research, said: “They’re doing it because they really have to do it.” He added that the pay-off is not certain though.
AT&T claims that the planned upgrade will also increase the revenue growth of the company above 100 basis points on top of the United States gross domestic product. The growth would support earnings per share growth in the coming three years.
However, Chaplin said that the growth targets of AT&T are not impressive.
“It looks like a giant boost of spending for the results we thought (they’d produce) all along,” Chaplin noted.
The upgrade plan calls for a budget of $8 billion targeted for the company’s wireless network while a $6 billion budget is allocated for wireline network.
Business customers of AT&T are worried about the company’s spending plans due to weak U.S. economy and the planned government “fiscal cliff”, which gives lawmakers and the White House about two months to decide whether or not to plan to shrink the federal budget. If both parties cannot decide after a self-imposed deadline, the government will face a $600 billion spending cut and higher taxes starting next year.
AT&T Chief executive Stephenson said he hopes newly elected president Obama will get the fiscal cliff issue resolved as it builds a feeling of uncertainty that creates “a real throttle on this country’s growth now.”
The company will be using money from debt markets due to unusually low interest rates.
AT&T wireline network will be upgraded to fiber to cater to other 1 million business customers as well as provide more high-speed internet service to wireline customers. U-verse services will be expanded as a result of the planned upgrade as well. U-verse includes television and high-speed Internet.
Other partners of AT&T will reap benefits from the upgrade including Alcatel-Lucent, Cisco Systems Inc, Juniper Networks Inc, Ciena Corp, and Adtran Inc.
AT&T’s Long Term Evolution network will also receive an upgrade to deliver more services to 300 million customers by the end of 2014. the initial target planned to cover 250 million custoemrs at the end of 2013.
Suppliers of telecom gears like Texas Instruments, Analog Devices, Broadcom and Cavium, Xilinx, and Altera will also gain increased sales because of the plan, analysts said.