A top executive at AT&T said that the carrier’s capital spending will “definitely” decline over the coming years, partly due

Andre Fuetsch

to the carrier’s work to make its network more efficient.

“From a capital intensity standpoint, we see a downward trend,” Andre Fuetsch, president of AT&T Labs and the carrier’s CTO, said today at the Nomura 2016 Media, Telecom and Internet Conference in New York. Fuetsch was responding to a question about AT&T’s capex during the coming years. “It’s certainly not going up. It’s certainly going down.”

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Fuetsch explained that part of the reason AT&T’s capital expenses will decline is because of the carrier’s move to software-defined networking (SDN) and network function virtualization (NFV). The carrier has said it is well on its way to having 30 percent of its network virtualized by the end of this year, with a goal of virtualizing 75 percent of its network by 2020. Those efforts essentially move network functions from expensive dedicated hardware and onto software running on less expensive, commodity hardware.

“A lot of it from the efficiencies we’re gaining from vitalization and software are certainly happening,” Fuetsch said. “The efficiencies we’re gaining – as we deploy more and more virtual functions, and as the hardware that we’re running those virtual functions, as that becomes more commoditized – all those efficiencies we gain back. We have the option of turning those investments back into the network or keeping those. So I would say, again, it’s hard to speculate here, but definitely a downward trajectory [in capex] is what we’re looking at.”

Fuetsch added that AT&T’s ongoing move to SDN and NFV technologies will also help the operator lower its operational expenses. “We see the opex opportunities actually being more [than capex opportunities],” he said. “We no longer have to deploy technicians to install these things. All this is going to be automatic. Because it’s so virtualized, we can move and shift capacity around on the fly. So it gives us not just the operational efficiencies, but it also gives us the opportunity to do more things on the top-line side – to add more capability, more functionality, more value – just because you’re compressing these time to market cycles. That’s the beauty of software: Things get faster.”

Interestingly, Fuetsch said AT&T is already seeing some cost savings from its SDN and NFV efforts. “If you look at the efficiency of the capacity we put into the network, just in 2015, 2016, we’ve actually put in 2.5x the capacity at 75 percent of the cost of what we paid back in ’13 and ’14. So you already seen the economics, the efficiencies coming in from these new technologies,” he said. “Going forward, we will continue to see the cost-per-megabyte transported to continue to drop. And we’re in the business of connectivity, and that’s what it’s really all about.”

The four major U.S. wireless carriers spent a combined $7.3 billion in capex in the second quarter of 2016, according to Jennifer Fritzsche of Wells Fargo Securities, down 10 percent from the $8.1 billion they spent during the same period a year ago. But that drop-off was due primarily to Sprint’s $376 million in capex spending, which marked a dramatic decrease from the $1.6 billion it spent during the second quarter of 2015.

As for AT&T specifically, the company’s CFO said during the operator’s second quarter conference call with analysts that AT&T has spent $10.3 billion in capex so far this year, and that it likely will come in below its $22 billion overall target for 2016. That spending covers all of AT&T’s business, including its wireless and wireline networks.

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