Verizon has acquired full control of Verizon Wireless from partner Vodafone for $130b. Vodafone’s Suppliers will do well from its $10b “Project Spring” investment program. I’m hoping a chunk goes to core optical network supplier Infinera (my largest individual stock holding).
On the Verizon side, I expect network spending (and network quality/innovation) to drop. Verizon will probably siphon off more wireless cash flow to fund its dividend and other deals and spend less on actually providing what had been the best quality wireless service in the US.
- Verizon Wireless’ high quality network was largely result of its ownership structure. Vodafone was owed a dividend on any profits that weren’t reinvested in the business. So Verizon (who had management control) starved Vodafone by over-investing in the network. This is the financial dynamic that led to the reliable signal, rapid LTE rollout, and “Can You Hear Me” marketing campaigns that set VZ wireless apart all these years.
- What? And you thought they did the whole “quality” thing out of smart business strategy, long-term thinking and the goodness of their own hearts? Hah!
- Having bought out Vodafone, Verizon can now claim 100% of those cash flows for itself. And it needs them; To fund its dividend most notably (it had been borrowing to keep up on payments). And completing the FIOS build-out. And for executive vanity projects (like most M&A). Inevitably, that will mean at least a little less money going into the actual Verizon Wireless network. Probably not a cataclysmic shut-down, but a tapering.
- This is bad news for suppliers across a pretty wide range of suppliers, but most directly for RAN (Radio Access Network) suppliers Ericsson and Alcatel-Lucent. It will also reduce demand for backhaul gear to connect new base stations (Adtran, Ciena). It will also dampen the wireless router business of Cisco and Juniper (although growing data traffic loads from existing towers will still require upgrades even if VZ stops adding radio coverage).
- This is also bad news for VZ customers (like myself). The typical telco model (see AT&T) is to drip feed capital investment only when customer pain become unbearable (collecting money and NOT spending it on upgrades is a very profitable business model). VZ Wireless was an exception to that rule. With the change in its ownership structure, I expect it to revert to that unpleasant norm.
