Wednesday, January 23, 2008

Cash flow, depreciation trump infrastructure investment at AT&T

If you're in AT&T's 22-state service area and wondering why your phone service is poor or you can't get broadband from the big telco, DSL Prime's Dave Burstein has done some digging into AT&T's financials that may offer an explanation.

Burstein finds company suffers from a myopic fixation on cash flow at the expense of investing in the future of its infrastructure. A good indication, Burstein writes, is comparing depreciation to capital expenditures:

Most significant, AT&T's capital spending since 2002 has been cut in half to 20 to 30 percent less than their depreciation. Over five years, their depreciation was $42B and their capex $31B. Unless they have a major discrepancy in their balance sheet, that implies they are not maintaining their network. This has raised their cash flow and stock price significantly, but presumably will bite them eventually.

Burstein's take on the recent decline in AT&T's stock price -- which the company lamely suggested was due to residential wire line customers not paying their bills -- suggests Ma Bell's derriere is exposed and already being bitten.

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