VZ - Verizon Communications

[Longtermlens]

Anyone looking to add here? 

[LearningMachine]

25 minutes ago, Longtermlens said:

Anyone looking to add here? 

I'm looking to add here.  Can't get this kind of earnings yield anywhere else. Verizon's 2020 Cash flow from operations was $41.768.  For comparison, Berkshire Hathaway's was $39.773B.

 

 

[fareastwarriors]

Verizon Communications Inc. is considering selling its media division, according to people familiar with the matter, as the telecommunications giant seeks to unload once high-flying dot-com brands such as Yahoo! and AOL.

Verizon Media could fetch as much as $5 billion,

https://finance.yahoo.com/news/verizon-communications-weighing-sale-yahoo-205218993.html

[dwy000]

That makes a whole lot of sense. It would effectively unwind the efforts to replicate ATT as a communications and media company to focus solely on the pipes over content. They probably wanted to sell it a year ago and had to wait for results to rebound.  I've never really seen the synergy argument between those assets and the wireless division. 

 

Here's hoping they get a great price for it and don't just use the money for debt reduction (sell a 5% growing cash yield asset to repay 3% cash cost liability)

[LearningMachine]

What do folks think of Buffet's laugh and answer to the Verizon question at today's Berkshire Hathaway shareholder's meeting?  

• Question: "You recently purchased a large stake in Verizon. For educational purposes, could you please explain your thinking behind this investment. In general, many people see telecoms as dumb pipes that have to spend heavily on capex building out the 5g infrastructure only for the other tech companies to take advantage and capture most of the value created from the infrastructure like facebook, uber, airbnb and doordash?"
• Buffett: "Well, I think he has analyzed the situation well but we are not in the business of [laughing] explaining why we own the stock, which we either might buy more of, or sell, or who knows what? So, he is on his own, but he sounds like he is very capable of thinking it through very well."

Do folks see any parallels to the poker faced answer Buffett gave in the 2020 shareholder's meeting to the question on buying back BRK shares? 

[hasilp89]

2 hours ago, LearningMachine said:

What do folks think of Buffet's laugh and answer to the Verizon question at today's Berkshire Hathaway shareholder's meeting?  

• Question: "You recently purchased a large stake in Verizon. For educational purposes, could you please explain your thinking behind this investment. In general, many people see telecoms as dumb pipes that have to spend heavily on capex building out the 5g infrastructure only for the other tech companies to take advantage and capture most of the value created from the infrastructure like facebook, uber, airbnb and doordash?"
• Buffett: "Well, I think he has analyzed the situation well but we are not in the business of [laughing] explaining why we own the stock, which we either might buy more of, or sell, or who knows what? So, he is on his own, but he sounds like he is very capable of thinking it through very well."

Do folks see any parallels to the poker faced answer Buffett gave in the 2020 shareholder's meeting to the question on buying back BRK shares? 

My take went the other way. Ie when he was asked about buying something until they found something cheaper he said something like “we understand the business but we have no particular insights.” I wondered if he was putting VZ in that camp. Doesn’t mean it’s a bad business or investment. I could be completely off. 

[LearningMachine]

15 hours ago, hasilp89 said:

My take went the other way. Ie when he was asked about buying something until they found something cheaper he said something like “we understand the business but we have no particular insights.” I wondered if he was putting VZ in that camp. Doesn’t mean it’s a bad business or investment. I could be completely off. 

When he was talking about not having particular insights to be able to value better than others, he mentioned "they are as a group" and "would rather own those stocks than the Treasury bills we own" very briefly, but then he stopped going deeper.  So, I thought he meant the pharma or the Japanese stocks that he bought where he let the market price them for him instead of figuring out the value himself.

Edited May 2, 2021 by LearningMachine

[woodstove]

It was a very good question.  If I had asked a question, it would have been along that line -- although the question-asker worded it better.  Anywaqy, guess we just have to think of this as a sort of challenge / opportunity! 

[LearningMachine]

I think Buffett knows how to value VZ because otherwise he wouldn't have said that the questioner has "analyzed the situation well" and "is very capable of thinking through it well."

 

Given Buffet's history lesson about even if you knew there would be 290 million vehicles buzzing around one day, how many auto manufacturers had failed, I wonder if the thought had occurred to him that if he was investing at the time auto-manufacturers were going crazy about growth in auto-manufacturing, if he could, he would have bought the highways instead of auto-manufacturers.

 

Now, I wonder if he is thinking that the demand for mobility is going up every day with new companies being formed, and that he is getting the chance to buy the highways/pipeline equivalent for data, where after spectrum sales are done, highways/pipeline equivalent are actually restricted in supply and cannot be laid down more (unlike fiber/highways/pipelines).  He might be secretly buying more and might be seeing it as a long term investment that will pay off well as more wireless scenarios are invented by new companies every day, equivalent of more cars coming to freeways some day. 

Looks like we will find out in a couple of weeks if he has been buying more :-).

Edited May 2, 2021 by LearningMachine

[scorpioncapital]

that last point is interesting because if you look at berkshire, a large part of it is infrastructure. I think he finds it as a place to allocate large amounts of capital in fixed assets and stable returns meeting his 10% hurdle rate. Berkshire just cannot do what a smaller investor can do. For a smaller younger growth investor, VZ may not achieve their goals but for Berkshire it is the best practical fit. It also is in the US which has regulatory and knowledge advantages which he likes. Note he dumped a little LBTYA last year and then suddenly the VZ investment pops up.

[hasilp89]

8 hours ago, LearningMachine said:

I thought he meant the pharma or the Japanese stocks that he bought where he let the market price them for him instead of figuring out the value himself.

That is likely right, buying a basket within an industry fits that rational.

[LearningMachine]

For folks who have Verizon as their wireless provider, would you switch if

• Verizon raised your wireless plan price by 5% each year while everything around you is going up in price?
• Verizon raised your wireless plan price by 10% each year?  What percentage raise in prices would cause you to switch?
• Verizon gave you a new bundle that includes something you want while increasing the underlying wireless price by 5-10% but it is not obvious to you that they increased it?
• A competitor offered you a deal on a new phone while lowering your wireless subscription price by 5%?

 

Would it make a difference if 

• competitors followed the price increases, but continued to be lower than Verizon's prices by same percentage amount as in the past? 

Edited May 30, 2021 by LearningMachine

[dwy000]

Lots of discussion on how Dish will play in the wireless space on CoBF (under various different investment names) so I thought this was interesting.  It pretty much agrees with all the analysis here on the board but adds interesting comments on how they could play with Amazon.

 

I thought the $11 number was quite interesting.  Speaks to margins for incumbents even at the $30 or wholesale rate.

 

Dish Stock Falls as Analyst Doubts Wireless Play’s Success | Multichannel News (nexttv.com)

[LearningMachine]

On 6/9/2021 at 9:26 AM, dwy000 said:

Lots of discussion on how Dish will play in the wireless space on CoBF (under various different investment names) so I thought this was interesting.  It pretty much agrees with all the analysis here on the board but adds interesting comments on how they could play with Amazon.

 

I thought the $11 number was quite interesting.  Speaks to margins for incumbents even at the $30 or wholesale rate.

 

Dish Stock Falls as Analyst Doubts Wireless Play’s Success | Multichannel News (nexttv.com)

 

Thanks @dwy000 for sharing.  Interesting indeed. 

 

With its customer obsession, looks like Amazon would want to preserve its high NPS (50s and 60s).  From the history of Sprint network, I wouldn't be surprised if DISH NPS based on quality might be 0 or negative.  If DISH could have undercut everyone on price, maybe it could have achieved acceptable NPS among lower-end customers, but it would be hard to undercut as Verizon already has Visible, MVNOs and now Tracfone going after price-sensitive consumers.  Anyway, looks like Amazon didn't want to risk that NPS cut.  Its product-specific NPS is low already with Amazon Prime video, which it is now trying to improve with MGM acquisition.  That said, having a fourth-network funded by big cashflow from another business was still the biggest risk in my mind to earning huge amounts of cashflow from the spectrum, like what Jio did in India.

 

If the new antitrust bills pass, I'll feel relieved in not having to watch this risk so closely :-).   I'll have to look at the final language, but looks like these bills are a HUGE blessing in disguise for Verizon and other cash-flowing spectrum owners as it will make it almost impossible for DISH to be acquired by Amazon or someone else with $20+ Billion of cashflow per year from another business to spend on the network:
 

https://www.cnbc.com/2021/06/09/democrats-draft-antitrust-bills-could-reshape-apple-amazon-google-facebook.html

 

 

Edited June 11, 2021 by LearningMachine

[dwy000]

11 minutes ago, LearningMachine said:

 

Thanks @dwy000 for sharing.  Interesting indeed. 

 

With its customer obsession, looks like Amazon would want to preserve its high NPS (50s and 60s).  From the history of Sprint network, I wouldn't be surprised if DISH NPS based on quality might be 0 or negative.  If DISH could undercut everyone on price, maybe it could be higher among lower-end customers, but it would be hard to undercut as Verizon already has Visible, MVNOs and now Tracfone going after price-sensitive consumers.  Anyway, looks like Amazon didn't want to risk that NPS cut.  Its product-specific NPS is low already with Amazon Prime video, which it is now trying to improve with MGM acquisition.  That said, having a fourth-network funded by big cashflow from another business was still the biggest risk in my mind to earning huge amounts of cashflow from the spectrum, like what Jio did in India.

 

If the new antitrust bills pass, I'll feel relieved in not having to watch this risk so closely :-).   I'll have to look at the final language, but looks like these bills are a HUGE blessing in disguise for Verizon and other cash-flowing spectrum owners as it will make it almost impossible for Amazon or another big player to acquire DISH now:
 

https://www.cnbc.com/2021/06/09/democrats-draft-antitrust-bills-could-reshape-apple-amazon-google-facebook.html

 

 

I don't think Amazon would ever acquire Dish.  Too much baggage and other issues.  I think Dish wants Amazon as an MVNO that anchors the new network they build.  And for the $11/month price it might make sense for Amazon.  But (agreeing with the article) there's probably no way Amazon signs on to an unbuilt, underbuilt or crappily managed network.  Bit of a chicken and egg for Dish.  It doesn't make sense to build a robust network without an Amazon like anchor.  But Amazon will never anchor without a robust and highly functional network.

[LearningMachine]

On 6/11/2021 at 12:17 PM, dwy000 said:

I don't think Amazon would ever acquire Dish.  Too much baggage and other issues.  I think Dish wants Amazon as an MVNO that anchors the new network they build.  And for the $11/month price it might make sense for Amazon.  But (agreeing with the article) there's probably no way Amazon signs on to an unbuilt, underbuilt or crappily managed network.  Bit of a chicken and egg for Dish.  It doesn't make sense to build a robust network without an Amazon like anchor.  But Amazon will never anchor without a robust and highly functional network.

@dwy000, I agree.

 

What do you think about the possibility of a region-by-region approach, similar to Amazon Fresh?  In other words, if Dish gets a high quality network in one region, Amazon agrees to offer that, and add more regions over time?  

 

I think that would be very hard to pull off because FCC requires DISH to have a nationwide network by some timeline.  For that Dish, needs to spend nationwide, for which it doesn't have yearly cashflow. 

 

Then, I wonder what if DISH tried a low quality network nationwide, but a high-quality network in just one region at a time.  But, that doesn't work with something like cellular service, where for high-quality network, high-quality nationwide coverage is probably a must.  Do you agree? 

 

Now, what if Dish kept on raising money from the stock market to build a low-quality network in the beginning, and kept on raising more money to get it to higher quality over time?  However, once brand is established for a low-quality network, it will be hard to change it, no?  Also, not a good place to be raising $20+ Billion from the market to build while other players can spend that from the cashflow coming in from the consumers.

 

Looks like the 3-network oligopoly is entrenched, and almost impossible to get into it, no?  Similar to how Munger talks about Coca Cola with Glotz example, where once you could spend 40% of cashflow on the brand, it would be hard for other players to catch up.  It didn't end up lasting amazingly well for Coca Cola because of health concerns and monopsony power built up by retailers.  However, here the 3 existing players can easily spend 40% of cashflow on the network quality (spectrum, bandwidth, coverage, reliability, etc.), and it would be hard for DISH to catch-up unless it could be funded from another cash-flowing business, but looks like that is not a possibility anymore. 

Edited June 14, 2021 by LearningMachine

[ander]

On 5/2/2021 at 1:12 AM, LearningMachine said:

I think Buffett knows how to value VZ because otherwise he wouldn't have said that the questioner has "analyzed the situation well" and "is very capable of thinking through it well."

 

Given Buffet's history lesson about even if you knew there would be 290 million vehicles buzzing around one day, how many auto manufacturers had failed, I wonder if the thought had occurred to him that if he was investing at the time auto-manufacturers were going crazy about growth in auto-manufacturing, if he could, he would have bought the highways instead of auto-manufacturers.

 

Now, I wonder if he is thinking that the demand for mobility is going up every day with new companies being formed, and that he is getting the chance to buy the highways/pipeline equivalent for data, where after spectrum sales are done, highways/pipeline equivalent are actually restricted in supply and cannot be laid down more (unlike fiber/highways/pipelines).  He might be secretly buying more and might be seeing it as a long term investment that will pay off well as more wireless scenarios are invented by new companies every day, equivalent of more cars coming to freeways some day. 

Looks like we will find out in a couple of weeks if he has been buying more :-).

 

I found your comment on "highways/pipeline equivalent are actually restricted in supply and cannot be laid down more (unlike fiber/highways/pipelines)" very interesting. I haven't researched the wireless spectrum allocation for about a decade on so was refreshing on where things stood. Here are some articles that stood out:

 

U.S. Frequency Allocation Chart (doc.gov)

an allocation chart from 2003

 

The End of Spectrum Scarcity - IEEE Spectrum

A historical look in 2004 looking forward - good summary about expanding capacity in the same spectrum

 

Microsoft Word - Position031410MCjb.doc (fcc.gov)

A position paper from 2010 looking at the issue

 

My key question to those who are much more informed than me on the topic: 1) the existing spectrum that's being allocated how likely is it to create scarcity?

(is there leased spectrum that can be re-allocated, spectrum re-sold, technology enhancements).