AT&T has announced it will not buy any more broadband equipment this year.
AT&T announced on Friday that it has halted all purchases of broadband equipment for the rest of the year, to ensure that it will not exceed its $4 billion broadband capital spending budget. The move is indicative of AT&T’s problems as a whole, as its debt/equity ratio has risen substantially over the last few months.
Cash flow is a global problem for telcos. BT and AT&T are obvious worst-cases, but all telcos which have invested in 3G licenses and in rolling out networks will have to rely on the banks to support them. Some, like Vodafone, have investor confidence whereas others don’t. Even though telcos are split into operational units, they need to be viewed in the context of their whole business. Heavy investment in one area means less money in the pot for others. Investment – in broadband technologies or otherwise – boils down to budgetary constraints.
As well as highlighting the telcos’ problems, AT&T’s announcement will have an impact on equipment suppliers, and in turn on their suppliers, the component manufacturers. Just when equipment makers were finally beginning to meet demand for components, having been hit last year by an overdemand, the number of orders has fallen.
This is obviously damaging for the suppliers, which will be shipping less kit with correspondingly lower revenues. Last year they failed to meet expectations because they couldn’t supply enough; this year they may fail to meet expectations because of insufficient demand.
It is fair to say, however, that compared to the telcos, network equipment manufacturers are generally sound businesses. After all, problems caused by expectations are more down to unrealistic analyst estimates than companies actually underperforming.
