You could barely hear the executives at Verizon speaking on their annual results call for the noise of them patting each other on the back. This is a company that has few ideas of where it is going and fewer about how to get there.
Yes it had tremendous results, but the new tax regime, which allowed it to take an almost $10 billion tax gain, compared to negative taxation of $7.4 billion, on an almost identical year, is entirely the cause.
The key message was that while others – AT&T, T-Mobile and Sprint – had a major offer in video, Verizon didn’t need one, as it has still managed to attract 1.2 million new connections during the year. This is a “backwards” logic, patting themselves on the back for spending close to $10 billion on acquisitions and still not managing to have a viable video strategy and that’s despite having additionally paid out an arm and a leg for NFL and NBA video rights.
AT&T has DirecTV Now, a move which has single handedly changed it from the “ailing network” to stock market darling, and T-Mobile offers multiple video initiatives including Binge On and free Netflix, while Sprint has managed to offer free Hulu (it’s free anyway, isn’t it?). Verizon has Go90 and is not saying anything about how well it is doing to the extent that it was not mentioned on the call and no-one even asked a question about it.
What was mentioned was fiber, tax reform, capex and 5G, none of which is what is wrong with Verizon. It says it is once again focusing in putting in fiber, it says it has the best millimeter wave 5G spectrum of anyone in the US, it is grateful for the tax reform, which means it can accelerate capex if it can find a reasonable return, but no it cannot find one right now – so much so that capex could fall $1 billion from $18 billion last year to as low as $17 billion in the coming year.
The way we read that at Faultline is that Verizon is running out of ideas, unlike its great rival AT&T which seems to be exploring a treasure trove of new broadband ideas right now, although it is on the same page as Verizon where capex and fixed wireless broadband are concerned.
The numbers show that Verizon mobile adds were up 1.2 million in the quarter, of which only 431,000 were smartphones, and it has hit growth of 1.8 million smartphones over the past year. The rest are either tablets (193,000 connected tablets) and 550,000 in the other category – many of which will be connected cars.
Verizon lost 29,000 video customers taking it down to 4.62 million; and even managed to lose broadband – down 19,000 homes to 5.85 million – sure Fios Internet went up, a bit (47,000), but DSL went down more (66,000). Fixed line phones went down 279,000 to 12.8 million.
Revenues went down $54 million to $126 billion for the year and the operating expenditure barely changed. If it had not been for the tax reform, analysts would have been left wondering what executives had been doing all year. Naturally the Verizon share price went up to a 52-week high valuing the company at $220 billion.
We keep coming back to the same criticisms – Verizon has spent some serious money, but its video strategy is showing NFL and NBA games on its phones – non-exclusively. It is coming up to 5G and wants to spend less than it has during the build out of its 4G network, and its only upside comes from having Comcast and Charter as partners which will be selling MVNOs and sustaining the numbers on its network, but eventually competing directly with it.