Despite the online gushing about a Verizon turnaround since CEO Dan Schulman took over, the completion of its break up by delayering, which started more than 10 years ago, seems a far more likely outcome for what was once the top wireless provider in the US.
Verizon has been delayering for a decade
Delayering is when a telco splits itself into separate ServCo, NetCo, and InfraCo layers and sells off its assets to address its debts. (For a deeper understanding, check out this TM Forum research report on it). Verizon has been at this awhile.
Sold its towers
Verizon began delayering in about 2015 when it sold most of its cell towers to American Tower and the rest to Vertical Bridge just last year. Now largely a ServCo-Netco, Verizon leases towers from American Tower, Vertical Bridge, Crown Castle, and SBA Communications. The company still owns its base stations and other network gear, which move toward obsolescence every day.
Sold its data centers
Verizon left the data center business in 2017 through a deal with Equinix and now partners with hyperscalers like AWS and Microsoft for data center capacity. So, Verizon does not own much of the physical plant where it runs its IT and network systems.
Verizon’s IT landscape remains on its books, but much or most of that is outsourced and licensed, some is obsolete, and all of it is aging fast. As the pace of change increases across IT markets worldwide, especially with the AI invasion, its legacy BSS and OSS systems become costlier and less relevant to future value.
Spinning off its stores
Most recently, Verizon announced it would convert its company-owned stores to franchised Authorized Retailers. Most likely these physical assets will go to big partners like Victra and Wireless Zone, which already operate thousands of Verizon stores. This also relates to the company’s announced layoffs of thousand of customer-facing employees to shed expense.
Fiber miles next?
Verizon still owns significant installed fiber optic assets. Just as AT&T and T‑Mobile US lease most of their fiber, we should probably expect to see Verizon sell off this physical plant to raise more cash.
Becoming customer-focused? Not really
Schulman’s turnaround spiel insists the company “must shift to a customer-first focus.” This is a tacit admission that Verizon isn’t customer-focused now.
Lip service ripped from T‑Mobile
Spinning out thousands of stores to partners who charge added service fees doesn’t sound like a customer-centric move. The messaging sounds disingenuous and is cut-and-pasted from T‑Mobile’s playbook. T‑Mobile’s “customer obsession” has helped it take the lead in US wireless and it took a few years to kick in.
Cut rate holiday offers
Verizon launched a “bring your bill” holiday campaign to undercut AT&T and T‑Mobile pricing. This isn’t customer-centric, it’s prospect-centric. And it’s a race to the bottom price gimmick Sprint failed with before being acquired by T‑Mobile US.
This desperation rate cut coupled with the 13,000 non-union layoffs looks more like a short-term ploy to bump Verizon’s stock by doing two things Wall Street likes: cutting costs and adding subscribers.
These moves might benefit Schulman’s cadre of executives and remaining shareholding employees. Keep an eye on insider sales the minute the stock price moves north, if it does.
Cannibalizing its own MVNOs
Part of Schulman’s justification for price cutting is to fend off its aggressive competitors and turn the tide on customer churn. Wireless offerings from cable MSOs are major drivers of the churn he wants to stop. Two of the biggest players in cable MVNOs are Comcast and Charter, which use Verizon’s network. Verizon might win some customers away from AT&T and T‑Mobile with its holiday sale, but they will also undercut these wholesale customers.
Back in May, Verizon Consumer CEO Sowmyanarayan Sampath was telling the street that cable MSOs are “a very important strategic partner of ours” adding that because they only focus on certain segments and play in markets where Verizon “may not have a presence… it’s actually a gain for us.”
Here’s your mixed metaphor of the day: Verizon is a snake eating its tail while rearranging deck chairs on a sinking ship. This is BS on top of BS from Verizon leadership.
A mountain of debt to conquer
One thing Verizon does own is a $147 billion mountain of debt. This stands against less than $8 billion in cash on hand. Some of this debt is a leftover from the company’s debt financed, $130 billion purchase of Vodafone’s stake in Verizon Wireless back in 2014. Selling off assets to American Tower for $5 billion hardly made a dent. Some debt also ties back to its C‑band spectrum auction “win” in 2021, which cost the company more than $45 billion. Spectrum remains Verizon’s prized asset, but it’s not enough to overcome its debts.
This makes Verizon dependent on its rich cash flows. The company reported about $135 billion in operating revenue for 2024, with about $37 billion in cash flow and $19.8 billion in free cash flow. Verizon’s annual interest expense alone is around $7 billion. This doesn’t set a great stage for a turnaround and is a big part of the reason for the company’s mass layoffs just before the US Thanksgiving holiday. Classy move.
There’s not much left for Verizon to sell out of its cupboard and only so many heads it can cut to deal with its ugly debt problem.
If you’re a Verizon IT vendor, get ready to feel the squeeze. You can bet a round of contract cancellations are on the way. It would not be the first-time new management in a US telco booted out as many IT players as it could to cut costs.
Private bankers happy, public shareholders not
What’s left of Verizon will be a low-cost wireless brand that offers less value to consumers than its own MVNOs.
This reduced company isn’t suddenly going to care better for its customers. It won’t cater to businesses better as it trims back the IT and employees it needs to do so. And it doesn’t offer a better network than its rivals.
Schulman may have a great track record making investors happy, but which investors is he trying to make happy now? I don’t think it’s the public market.
Private banking interests will benefit most from the finalization of Verizon’s break up. Public shareholders will be left with the brand, debts, spectrum — if that isn’t also sold off — IT expense, and probably a reduced dividend in the not-too-distant future.
Verizon turn-around? It seems doubtful that’s even the plan. The completion of its de-layering and devouring by private money interests looks like a far more likely outcome. Then it’s a question of who buys whatever is left.