AT&T Inc will increase capital spending by as much as 16 percent to $22 billion a year for the next three years to fund upgrades to its wireless and wireline networks, the company said on Wednesday, sending its shares down more than 3 percent.
Continue Reading Below
AT&T needs to invest to compete with Verizon Communications Inc , which is ahead in its wireless network upgrade, and to take advantage of emerging businesses such as cars with built-in wireless Internet connections.
AT&T said it decided to upgrade its wireline network as other options such as carving off the wireline business or divesting parts of the network were not as attractive financially. It previously said it was considering selling some rural phone lines.
"This gives us the opportunity to improve our top line growth and change our cost structure," Chief Executive Randall Stephenson told analysts at an AT&T event in New York.
Ahead of the investment increase, AT&T said that capital spending for 2012 will come in at the low end of its previously announced range of $19 billion to $20 billion.
The network expansion plans call for a budget of $8 billion for expanding the wireless network and $6 billion for upgrading its wireline network, the company said.
Continue Reading Below
The investment plan calls for capital spending to increase to the high end of the mid-teen percentage range of revenue for the next two years, with spending returning to normal levels in 2015, according to AT&T.
The company also plans to tap debt markets to take advantage of historically low interest rates. As a result it expects its ratio of net debt to earnings before interest, tax, depreciation and amortization to increase to the 1.8 range over the next two years from 1.42 at the end of the third quarter.
Under its plan, AT&T said it would upgrade its wireline network with fiber to reach another 1 million business customers and would provide high-speed Internet service to 75 percent of wireline customer locations.
It will expand its U-verse services, which include high-speed Internet and television services, by a third to cover 43 percent of its network by the end of 2015.
The upgrade plans also include an extension of AT&T's high-speed wireless network based on the Long Term Evolution standard to cover 300 million people by the end of 2014. Its previous plan called for coverage of 250 million people by the end of 2013.
The company also forecast earnings per share growth in the mid-single-digit percentage range for the next three years and raised its quarterly dividend to 45 cents per share from 44 cents.
AT&T shares were down 3.3 percent at $33.66 on Wednesday morning on the New York Stock Exchange. (Reporting by Sinead Carew in New York; editing by Gerald E. McCormick, James Dalgleish and Matthew Lewis)