AT&T's Fiber Optic Construction Last Six Years -- $140 Billion, or One Slice of Pizza and "FiberHype"?

AT&T has just announced yet another round of new plans to deploy fiber optic services in a slew of additional cities, what I now refer to as "FiberHype," one word. And I'll get to the slice of pizza (no toppings) in a moment.

A year ago I wrote an article laying out AT&T's Top 13 Broken Promises, and you can find all of the gory details in "The Book of Broken Promises". The theme has been the same for over a decade -- just make stuff up; no one will notice or check or hold the company accountable.

And in this "say anything" world, as I sit here reading a Washington Post article, AT&T now claims it has spent $140 billion in fiber optics over the last six years.

Part of what's going on is that AT&T is leaning on decades of expertise in building networks. It has spent $140 billion laying down new fiber optic cables over the last six years, and it's likely to spend even more as it expands to markets like Asheville, N.C., Louisville, Ky., and St. Louis, Mo.

Unfortunately, I remember that I examined these numbers recently -- and this $140 billion is just make believe, just FiberHype. So, instead of talking about deployments, let's just go through the money AT&T supposedly spent on fiber optic broadband construction, by the numbers.

Source: AT&T's 2014 Annual Report. The chart uses an excerpt from Exhibit 13.

1) As stated, AT&T claims it spent $140 billion on fiber optic construction in six years.
2) However, as told by the AT&T's own 2014 Annual Report, 'construction and capital expenditures' (capX) for the last five years were only $103 billion - about $20.6 billion annually.

We did a total for 2015 using 3rdQ, 2015; it comes to only $18 billion in capX. And AT&T said as much in 2014:

We expect our 2015 capital expenditures for our existing businesses to be in the $18,000 range. Due to our completion of Project VIP, we anticipate lower capital spending in our Wireless and Wireline segments in 2015.

FINDING 1: AT&T's own SEC filed financial reports show that capX for the last six years was a total of $121 billion, at best.

Next, Revenues vs. Construction

3) AT&T brought in a whopping $640 billion in revenues for these five years, 2010-2014.
4) These revenues represent both wireline and wireless services.
5) AT&T only spent 16% on construction as a percentage of the revenues ($103 billion in construction for five years is 16% of $640 billion (rounded for five years).

Extrapolating for 2015, (using 2014 revenues total for 2015) AT&T's revenues would be $772 billion for six years.

Note: Rigorous investments in network infrastructure have historically been 18%-20% of revenues, not 16%.

FINDING 2: The six year total would be $121 billion in CapX and $772 billion in Revenue, 2010-2015.

But Then We Have Some Issues.

6) Half of the CapX Is for Wireless, Not Wireline.

We know this because AT&T's 2014 Annual Report says 53% was for wireless.

Our Wireless segment represented 53% of our total spending and increased 2% in 2014. The Wireline segment, which includes U-verse services, represented 47% of the total capital expenditures and was flat in 2014, primarily reflecting our implementation of Project VIP, which we began in 2013 and substantially completed in 2014.

7) Previous Years Show that Wireless CapX Was at Least 50%.

Checking previous years, the AT&T 2012 Annual Report, Exhibit 13, shows that the company has been investing in the wireless business during this six year period.

Capital spending in our Wireless segment, excluding capitalized interest during construction, represented 55% of our total spending and increased 10% in 2012; the Wireline segment, which includes U-verse services, represented 45% of the total capital expenditures, excluding interest during construction, and decreased 15% in 2012. Wireless expenditures were primarily used for network capacity expansion, integration and upgrades to our HSPA network and the deployment of LTE equipment.


8) AT&T's Broadband U-Verse Service Is a Copper-to-the-Home Service.

U-Verse is not based on fiber optics; the only fiber being installed doesn't go to customers' homes or offices but to a box within the neighborhood.

9) Wireline Capital Expenditures had Little to do with 'Fiber Optics', Especially to the Home.

And let me be very clear -- history shows no AT&T major fiber optic excitement or expenditures by name. This AT&T 2012 excerpt on capital expenditures has little to do with fiber optics, especially to the home.

Project VIP. In November 2012, we announced plans to significantly expand and enhance our wireless and wireline broadband networks to support future IP data growth and new services. As part of Project Velocity IP (VIP), we plan to expand our deployment of LTE wireless technology and deploy additional technology to further improve wireless spectrum efficiencies. To that end, we expect to cover at least 250 million people in the United States by year-end 2013 and approximately 300 million people in the United States by the end of 2014. In addition, we plan to expand our wireline IP broadband network to additional residential and small-business customer locations to cover approximately 75 percent of all such customer locations in our 22-state wireline service area by year-end 2015. This project is intended to support new revenue opportunities in four key areas: wireless, strategic network services, network managed ("cloud") services and security as well as continued growth in existing wireless, U-verse and IP-related business services. We expect capital expenditures in the $21,000 range for 2013, and 2014 and 2015 to each be approximately $22,000, and then decrease to pre-Project VIP levels.

10) The Total Budget Is for All Expenditures, Not Just Fiber Optics--and the Cross-Subsidies Could be Worth an Investigation.

In our recently released reports we detail Verizon's capital expenditures and note that the majority of it is being dumped into local service expenses, the copper-based service. AT&T's entire U-verse is predicated on using the existing, legacy, copper utility wires, and if wireless is using this budget, that's of interest as AT&T has been claiming that the company needs to 'shut off' customers in areas that are 'unprofitable'. Also, we know in most AT&T states, the commissions and AT&T uses the FCC's Big Freeze formulas (we discussed in the reports), to allocate expenses. This current AT&T statement of $140 billion of fiber optic expenditures, then, would indicate massive cross-subsidies.

11) When We Add All of this Up, Something Is Amiss.

  • $140 Billion in Six Years -- Claimed.
  • $121 Billion -- In Six Years Total Construction, Annual Report.
  • 50% -- Is Going to Wireless -- 60 Billion Less.
  • U-Verse Is Copper to the Home.

When you add it up, not only did AT&T "miss-speak" about the $140 billion total -- let's call it a 15% FiberHype tax, (as the six years yielded only $121 billion in construction), but when we cut that in half, (as 50% has nothing to do with wiring the cities) -- i.e., that's $60 billion, (over six years)...

One Slice of Pizza?

Then we have to cut that into slices, like a pizza pie, because U-Verse is a copper-to-the-home service, and the total expenses for capX are for all expenses, copper and fiber.

Since it is obvious that AT&T can just make up numbers, we believe that AT&T's fiber optic expenditures are probably one slice of a 10 slice pie -- without toppings. That's about as accurate as any regulator has been, so...

In other words, without audits, there's no way we can accurately know how much AT&T's wireline company spent on fiber optics, but it is probably about $10-$20 billion, not $140 billion.

To put it into perspective, Verizon claimed it was spending about $23 billion in 7 years on FiOS, which at least is based on a fiber optic wire. (We note customers were charged for the construction and without audits it is impossible to know the extent of the actual spending.)

U-Verse was a bait-and-switch and relies on the existing, aging copper wires. Logic, then, would assume that AT&T spent a lot less than it would have had they actually rolled out fiber optic services.

So, one slice of AT&T's $140 billion pizza pie, (with 10 slices) would be about $14 billion -- that would be more like it -- or 90% less was probably spent on fiber optics in cities.

But the outcome of this statistical slippery slope is disturbing in that these data points are applied to a story about the future of wiring cities. This would mean, on the surface, that the deployments are also as slippery -- a greasy slice of pizza.

I do note that others have noticed that this new announcement is just another fiber-to-the-press-release. Karl Bode's Techdirt article starts with:

AT&T Has Fooled the Press and Public into Believing It's Building a Massive Fiber Network That Barely Exists

Coda

AT&T's Code of Business Conduct appears to be in direct contradiction to Techdirt's conclusion.

It would seem, according to this document, that anyone who feels AT&T does not keep its commitments can hold AT&T's management, including, Randall Stephenson, Chairman and CEO, who signed this document, personally responsible.