* More investment needed to compete with Verizon
* Sees tapping debt markets, raising debt-to-EBITDA ratio
* Plans LTE expansion to cover 300 mln people by end 2014
* Sees mid-single digit pct range EPS growth in next 3 years
* AT&T shares fall more than 3 pct
(Adds analyst comment on chipmakers, paragraph 30)
By Sinead Carew
Nov 7 AT&T Inc will boost capital spending
by about 16 percent to $22 billion a year for the next three
years to upgrade its wireless and wireline networks, the company
said on Wednesday.
Its shares fell more than 3 percent after the news.
Rival Verizon Communications Inc is ahead in
high-speed mobile services, and AT&T also must improve rural
phone lines, comprised of outdated copper technology.
The company said it hopes the investments will boost revenue
growth by allowing it to chase new opportunities such as adding
wireless connections to cars and home security.
AT&T said upgrading its wireline network was more attractive
than carving off the business or divesting parts of the network.
Previously, it said it was considering selling some rural phone
"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.
Investors worried about the spending hike from AT&T's 2012
capital budget for $19 billion to $20 billion, although the
company vowed to come in at the low end of the range this year.
"It's a big number and it's not just for one year," Hudson
Square Research analyst Todd Rethemeier said.
Verizon Communications has sold off many hard-to-reach rural
phone lines. AT&T was forced into the upgrade option because it
could not find a buyer, Rethemeier said.
"They're doing it because they really have to do it," said
New Street Research analyst Jonathan Chaplin, adding that "the
pay-off is unclear."
AT&T said the investment would lead to revenue growth 100
basis points above the U.S. gross domestic product, supporting
earnings per share growth in the mid-single-digit percentage
range for the next three years.
But Chaplin was unimpressed with the growth targets.
"It looks like a giant boost of spending for the results we
thought (they'd produce) all along," he said.
AT&T shares were down $1.18 or 3 percent at $33.62 on the
New York Stock Exchange after the news. The S&P 500 stock index
was down 2 percent.
The three-year spending plan includes a budget of $8 billion
for expanding the wireless network and $6 billion for upgrading
the wireline network, the company said.
It said this will boost capital expenses to the high end of
its target for spending in the mid-teen percentage range of
revenue for the next two years, with spending returning to
normal levels in 2015.
Executives said AT&T's business customers are nervous about
spending due to the weak economy and the looming U.S. "fiscal
cliff" under which the White House and lawmakers have two months
to agree on a plan to shrink the federal budget.
Failure to meet the self-imposed deadline will trigger $600
billion in spending cuts and higher taxes beginning in January.
A day after President Barack Obama was re-elected, AT&T CEO
Stephenson said he hopes the government will focus on resolving
the fiscal cliff. He told analysts the uncertainty is creating
"a real throttle on this country's growth now."
Stephenson told Reuters he hoped Obama's re-election "will
be a positive and get us going forward on this fiscal cliff."
AT&T plans to tap debt markets to take advantage of
historically low interest rates. It expects its ratio of net
debt to earnings before interest, tax, depreciation and
amortization to rise to about 1.8 over the next two years from
1.42 at the end of the third quarter.
Chaplin said he expects AT&T will partially offset steeper
spending by using additional financing to buy back shares.
The company also said it would raise its quarterly dividend
to 45 cents per share from 44 cents.
AT&T said it would upgrade its wireline network with fiber
to reach another 1 million business customers and 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, by a third to cover 43
percent of its network by the end of 2015.
The wireline upgrade plans should benefit AT&T's main
equipment vendor Alcatel-Lucent, and to a lesser
extent Juniper Networks Inc, Cisco Systems Inc
, Adtran Inc and Ciena Corp, Morgan
Stanley analyst Ehud Gelblum said in a research note.
AT&T also plans to expand its high-speed wireless network
based on the Long Term Evolution (LTE) standard to cover 300
million people, or most of the country, by the end of 2014. Its
previously planned coverage of 250 million people by the end of
Bigger rival Verizon Wireless, a venture of Verizon and
Vodafone Group Plc, says it will have upgraded its
entire network with LTE by the end of 2013.
Ralph de la Vega, the head of AT&T's wireless business, said
the company's upgrade plan calls for much deeper coverage than
its bigger rival. "We might be more conservative in what we call
ready than the other guy," he told Reuters. "If we can do it
sooner we will but we're not going to compromise coverage."
The wireless upgrade should benefit Ericsson and
Alcatel Lucent, according to Gelblum.
Chipmakers selling components used in telecom
infrastructure, including Xilinx, Altera,
Texas Instruments, Analog Devices, Freescale
, Broadcom and Cavium, also stand to
gain from AT&T's increased spending, analysts said.
AT&T plans to expand beyond cellphones by offering a
wireless home security services next year. It also has deals
with automakers for its connected-car initiative, according to
de la Vega who declined to provide details.
De la Vega said AT&T aims for these businesses to become $1
billion annual revenue opportunities in two to five years.
Stephenson said AT&T could make small "tuck-in" acquisitions
in these new market segments.
(Reporting by Sinead Carew in New York. Additional reporting by
Noel Randewich in San Francisco. Editing by Gerald E. McCormick,
James Dalgleish and Matthew Lewis)