Vestberg tears down walls between wireline and wireless at Verizon

Improving the 5G business case, and accelerating revenues, are among the goals of a major reorganization at Verizon, announced by new CEO Hans Vestberg. Clearly not deterred by the failure of his shake-up efforts as CEO of Ericsson, the Swede has torn down the barriers between wired and wireless networks, and split sales activities between consumer and enterprise.

Both have wider implications than just 5G, but are very pertinent to the 5G effort. As we have often discussed, 5G is almost as much a fiber network as a wireless one, given its requirement for backhaul and fronthaul, and the potential for converged access when all connectivity is run from a single virtualized core. And increasing the focus of the enterprise sales operations can only help to drive that most elusive of 5G goals, more revenue and profit from business, IoT and indoor services, areas where most operators have failed in the mobile world.

Vestberg named CTO Kyle Malady as the head of the company’s new Global Network & Technology organization, whose responsibilities include building the 5G network and providing technology support to the three customer-facing divisions (consumer, enterprise and media).

Malady was named interim CTO this summer, replacing Vestberg, when he stepped up to replace former CEO Lowell McAdam. Malady has served as Verizon’s chief network officer of wireline, and before that, as VP of new product development at Verizon Wireless, where he was responsible for the launch of services like VCast Music and Video, VZ Navigator, the Verizon App Store and other platforms.

Ronan Dunne, currently head of the wireless business, will head the consumer division for wireless and wireline, while Tami Erwin, currently EVP of wireless operations, will do the same for the business division. The fact that both sections will be led by people from a wireless background points to the importance of 5G, and of wireless in general, to Verizon’s growth prospects.

The new Verizon Business Group will include the company’s wireless and wireline enterprise, small and medium business, and government activities, as well as wireline wholesale and Verizon Connect, the company’s telematics unit.

The Oath media business, which includes the AOL and Yahoo acquisitions, will become the Verizon Media Group, though it will continue to use the Oath brand for now. It will be led by Guru Gowrappan, who became CEO of Oath following the departure of AOL executive Tim Armstrong.

“This new structure reflects a clear strategy that starts with Verizon customers,” said Vestberg in a statement. “We’re building on our network transformation efforts and the intelligent edge architecture to deliver new customer experiences and optimize the growth opportunities we see as leaders in the 5G era.”

In a letter to employees, he wrote: “What’s unmistakable is we can be even better, that we have a lot of potential just waiting to be unlocked … Today, I want to share how we will organize our team to better take advantage of the opportunities ahead of us. I like to call it … Verizon 2.0, ‘Building tomorrow with the best of today’.’”

Those fine words will not allay fears of further job losses at Verizon, which has already reduced its headcount by about 25,000 over the past three years. Last month it was reported to have offered 44,000 employees a severance deal as part of a four-year, $10bn cost reduction plan. While the convergence of wireline and wireless operations will certainly reflect market realities in future, and make it easier to launch services such as quad plays, it could also be a more cost-effective way of working, especially as Verizon looks to free up cash to keep pace in its 5G roll-out.

At Ericsson, Vestberg was accused of being too timid about cost reduction, though he was always creative in thinking of new structures, especially ones that would help expand the revenue base into the enterprise.

At Verizon, where there are plans to introduce heavy doses of automation and virtualization to reduce running costs, he is unlikely to make the same mistakes, though we must hope he keeps the creativity along with a new ruthlessness.

He was initially seen as an odd choice to replace McAdam, who retired on August 1. A CEO widely regarded as a failure, and one with very Scandinavian sensibilities, was not the obvious candidate to run one of the US’s top two telcos, at a crucial time of change. But his instincts may be better suited to Verizon, and this reshuffle is the first test of that theory.

Verizon saw strong performance on the wireless side of its business under McAdam, but was challenged in its fixed broadband activities, grappling with limited territorial reach and the increasing power of the major cablecos. Its response has been to diversify into content and media, with the acquisitions of AOL and Yahoo, and it now faces the challenge of ensuring that its aggressive 5G roll-out plan will support these ambitions.

Converging content and media with mobile access has not been a success for Verizon so far, with the limited impact of its Go90 mobile-first video service. Once it moves beyond the first stage of 5G deployment, which is focused on extending its fixed broadband footprint via fixed wireless, it will be essential to marry an enhanced mobile network more effectively with its content assets, and also with its activities in the enterprise Internet of Things.

This is what makes sense of the Vestberg appointment. Vestberg’s signature strategy at Ericsson was to reduce the Swedish vendor’s reliance on its core markets in mobile network equipment, because of commoditization and rising competition from Huawei and a rejuvenated Nokia. He expanded into new areas such as media platforms, cloud technology and enterprise solutions.

At Ericsson, this proved too much too soon. But at Verizon, the requirement is for a CEO who believes in diversification and is prepared to take bold decisions – as McAdam already did in some areas – to rethink the company’s direction and, indeed, its raison d’etre. And the relatively strong financial basis on which the leading US telcos are currently operating should give Vestberg a longer period in which to push through change than he was granted at Ericsson.

Verizon may have hired him initially as CTO, in 2017, for his intimate knowledge of the mobile networks business and technology, and ability to negotiate with the vendors, but as CEO, he is being appointed as an agent of change.

Jennifer Fritzche, analyst at Wells Fargo, wrote in a client note when Vestberg was promoted: “When a company shifts from appointing an executive who has long overseen the recurring revenue aspect and 90%+ of its current revenue to one with more an equipment background it is very telling, in our view. We have long thought the Verizon’s fiber build and focus on IoT was more significant than the Street may fully appreciate. We see this announcement as further evidence of this.”

Many analysts highlighted the new CEO’s deep network experience. Craig Moffett told Fortune: “The one clear takeaway is that this an endorsement of the ‘network first’ strategy that Verizon has long pursued. You cannot send a clearer signal than by choosing your CTO to be the next head of the company.”