Verizon Communications remains focused on its core asset—its network—during the pandemic and the shift to next-generation 5G technology. CEO Hans Vestberg spoke about the company’s “network as a service” approach to its business at Goldman Sachs’ annual Communacopia media and telecom conference on Tuesday.
Verizon (ticker: VZ) announced a nearly $7 billion deal for prepaid mobile virtual network operator TracFone Wireless on Monday. It resells wireless service on Verizon, AT&T (T), and T-Mobile US (TMUS) networks under brands including TracFone, StraightTalk Wireless, Simple Mobile, NET10 Wireless, and Total Wireless.
About 13 million of TracFone’s 21 million customers already connect to Verizon’s network under a wholesale agreement, and Vestberg said he expects that the network has enough capacity to migrate the remaining customers without requiring major additional investment. The company expects to spend roughly $18 billion on capital expenditures in 2020.
“Part of the network as a service strategy was to broaden out and make sure we’re using the network in a good way,” Vestberg said on Tuesday. “We’ve been number one in the premium segment, now we’re going to be number one in the value segment.”
Verizon has a long-term growth target of “GDP+,” meaning that it wants to increase its earnings at a rate just faster than U.S. economic growth. Its guidance for 2020—offered in late April—is for adjusted earnings per share of between a 2% decline and a 2% rise from 2019. A big part of the company’s future growth will come from 5G. The faster networks are being rolled out across the country by each of the wireless companies, and new phones that support 5G are also expected soon, including a 5G iPhone from Apple (AAPL). Verizon has said it expects to first see a material impact to its revenue from 5G in 2021.
Verizon was the largest bidder in a recent wireless spectrum auction, and analysts expect it to be a big spender in the larger forthcoming C-Band auction in December. Vestberg said Verizon is comfortable with its current spectrum portfolio, but that it would look to add licenses when it sees good value. He noted that increasing network capacity can come from a mix of adding spectrum, increasing densification of antennas, and improving software to make network traffic more efficient.
Verizon has a 5G network live in 36 U.S. cities, and expects to be in more than 60 cities by year-end, Vestberg said. He declined to give specifics, but implied that nationwide 5G coverage would come relatively soon.
More than half of Verizon’s accounts are already on unlimited data plans, but only the top-tier plans include 5G access. Nudging customers to those higher-priced plans is Verizon’s near-term strategy for monetizing mobile 5G.
Vestberg also spoke about Verizon’s ambitions for 5G fixed wireless broadband, which delivers cablelike home internet over a 5G network. Verizon expects to offer the service in more than 10 cities by the end of the year with speeds of at least 300 megabits per second.
“It’s a new market for us,” Vestberg said. “But remember, we only build the network once. There’s no difference in how we build the network.”
In the longer term, Verizon plans to build out its mobile edge computing capabilities—essentially mini data centers spread out through the network—to win 5G business from enterprise customers.
Vestberg said Verizon is committed to continuing to increase its dividend, which currently yields 4.2% annually, while paying down debt. The company reached the top end of its leverage target last quarter. Vestberg also said stock buybacks would remain on hold until after the C-Band auction is concluded and that Verizon isn’t afraid of increasing its capital spending if new opportunities come along.
Verizon stock has returned 1.5% after dividends in 2020, versus a 6.2% return for the S&P 500 and a 0.2% loss for the Dow Jones Industrial Average. Barron’s