Network Equipment Companies Rally on AT&T Buildout

11/07/2012| 03:45pm US/Eastern

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   By Drew FitzGerald 
 

Companies that own and equip network infrastructure enjoyed a big share boost Wednesday after AT&T Inc. (T) detailed plans to spend $14 billion to expand its U.S. footprint over the next three years.

The plan, which would devote $8 billion toward wireless infrastructure and spend about $6 billion on wireline investment, drove up shares of companies that own cellphone towers and network-gear makers that will equip those systems.

Shares in Procera Networks Inc. (>> Procera Networks, Inc.), a maker of routers and switches for the wireless industry, surged 14% to $23.04, while fiber-optic equipment provider Ciena Corp. (>> Ciena Corporation) jumped 9.1% to $14.39 after AT&T described plans to broaden the geographic reach of its wireline network.

The plan also drove up shares in American Tower Corp. (>> American Tower Corp), SBA Communications Corp. (>> SBA Communications Corporation) and Crown Castle International Corp. (>> Crown Castle International Corp.), cell-phone tower operators that stood out during Wednesday's sharp market selloff.

Analysts debated whether AT&T's strategy signals an individual decision by the country's biggest telecommunications provider by market value or suggests a broader shift in the industry is afoot.

"You have to look at what AT&T is doing and assume that at some level other carriers will have to follow suit," said Jonathan Schildkraut, analyst at Evercore Partners.

Companies on the equipment side of the industry have issued cautious commentary about their earnings this year, often blaming slow sales on data carriers' hesitant attitude. U.S. telecommunication spending essentially ground to a halt earlier this year after regulators scuttled AT&T's planned $39 billion takeover of T-Mobile USA, the American segment of Deutsche Telekom AG (DTE.XE, DTEGY), forcing both companies to regroup.

"I don't see this being an industry-wide event," FBR Capital Markets analyst Scott Thompson said. Still, AT&T's own plans provide a tailwind for gear makers such as Alcatel-Lucent (ALU, ALU.FR) and Juniper Networks Inc. (>> Juniper Networks, Inc.), among others.

ISI analyst Brian Marshall said it was a matter of time before a service provider disclosed plans to boost capital spending. Telecommunications companies tend to add infrastructure when their network use accounts for more than half of capital expenditures, Mr. Marshall said, but the firm estimates companies have been pushing that efficiency metric up to 55% to 60% in recent months.

"They can't continue to spend at those levels without having service outages, because they're running too hot," he said.

Write to Drew FitzGerald at andrew.fitzgerald@dowjones.com

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