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VERIZON INVESTS $1BN IN WIRELESS TECHNOLOGY

07 Jan 04. THE WALL STREET JOURNAL reports that Verizon Wireless is expected to announce Thursday that it will invest $1 billion in the next two years to deploy a high-speed wireless Internet data network nationwide, marking an increase in capital spending for the nation’s largest wireless carrier as competition for users intensifies.

The upgrade by Verizon Wireless could signal that the historic decline in the telecommunications industry has reached a bottom as the economy picks up steam, though many challenges remain. It is likely to put pressure on other wireless carriers to increase their capital spending and speed up plans to roll out similar features.

Lehman Brothers analyst Blake Bath recently estimated that capital spending in the wireless industry would rise in 2004 for the first time since 2001. The investment by Verizon Wireless will come in addition to its existing capital expenditure level of a little over $4 billion a year for the past two years.

The move shows that telecom companies are moving to invest in growth areas, even as their core businesses such as phone lines continue to decline amid increasing competition and the arrival of new technologies. “These companies know that it takes money to make money,” says David Barden, a telecom analyst at Banc of America Securities. “Telecom companies won’t be shy to invest in growth areas such as consumer video, broadband and their fledgling enterprise efforts — to benefit from a better economy, if it comes.”

Still, Verizon’s announcement comes amid conflicting signals about whether the telecom industry is clearly on the mend. Orders for communications equipment fell 40% in November from October, offsetting October’s 20% gain, according to the Commerce Department. After years of precipitous drops, many analysts also expect capital spending among traditional phone companies to begin stabilizing, though at much lower levels than at the height of the telecom boom. Banc of America Securities recently estimated that combined spending of phone companies, including wireless, will be about $35 billion this year, roughly in line with last year, but just half the industry’s total capital spending of $70 billion in 2001.

Investors seem ready to jump on any good news. Shares of Nortel Networks Corp. rose 92 cents, or 19%, to $5.68 in 4 p.m. New York Stock Exchange composite trading after Verizon’s local-phone business announced a contract estimated to be valued at more than $100 million that will enable its national wireline network to route calls via the Internet at cheaper rates than existing phone networks.

An increase in capital spending by wireless carriers would be good news for telecom-equipment manufacturers such as Nortel, Lucent Technologies Inc. and Telefon AB L.M. Ericsson, which struggled to survive the plummeting demand for their gear. Lucent and Nortel did the first two phases of Verizon’s wireless-data project and are expected to be included in the $1 billion contract, according to people familiar with the situation. Verizon Wireless is a joint venture of Verizon Communications Inc. and Vodafone Group PLC of the United Kingdom.

Not all telecom companies are predicting big increases in capital spending this year. Cingular, the nation’s second-largest wireless company, owned by BellSouth Corp. and SBC Communications Inc., is likely to keep its 2004 spending level more or less the same as it was in 2003. “We’ll be in the same ballpark where we are for the next few years,” says Ron Dykes, chief financial officer of BellSouth, which owns 40% of Cingular.

Verizon Wireless’s move toward true third-generation, or 3G, wireless technology comes as the company aims to expand its dominance in the wireless voice world into the still-unproven cellular data market. The new technology, called 1x EVDO, would let consumers use laptops or hand-held devices to surf the Internet and download data completely wirelessly at speeds comparable to those of wired di

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