AT&T: Tough to Go With the Flow

[Commentary] AT&T looks a bit pressed for cash.

The company surprised analysts when it said it would generate free cash flow of around $11 billion in 2014, far short of the $15.5 billion Wall Street projected. With roughly $9.7 billion of dividends due to be paid out of that sum, AT&T is left with little room for error even as competition in US wireless is intensifying. The primary reason for the shortfall: an expected increase of up to $3 billion in cash taxes. AT&T also plans capital expenditure of about $21 billion as it moves into the peak year of its network investment program. And the $11 billion free-cash-flow figure excludes extra spending arising from the acquisition of Leap Wireless. AT&T may start to feel the pinch with competition heating up. T-Mobile US has roiled the industry with a series of promotions aimed at taking market share. AT&T's average revenue per user showed little sign of such pressure in the fourth quarter. But things may worsen in 2014 given the price cut AT&T implemented in late 2013, New Street Research says. And T-Mobile's latest offer to cover the fees new subscribers pay for early termination of contracts with other carriers may have a sizable effect. That doesn't even take into account what Sprint might do.