VZ - Verizon Communications

[LearningMachine]

Interesting discussion of the relative spectrum holdings of Verizon and T-Mobile:  https://www.lightreading.com/5g/verizons-c-band-vs-t-mobiles-25ghz-which-is-better-for-5g/d/d-id/768085?_mc=RSS_LR_EDT

 

Thanks KJP for sharing.

 

T-Mobile & Verizon are approaching the market from opposite ends:

• T-Mobile wants to go after value consumers with its low-band that has lower cost of deployment but also has lower speed.
  
• Verizon wants high-end, high-margin consumers and is willing to pay high-cost for highband rollout for consumers in dense areas, stadiums & airports even though it is the highest cost to roll out due to small cells, but it is the one that offers highest speed all the way up to 4.0 Gbps in dense areas with highest number of concurrent users.  Verizon has more high-band spectrum than any other carrier, and also rolling it out first for people to lookup to.
  

 

Both need mid-band in-between.  Overall, though, Verizon will be a higher margin, more profitable business because of high-end, high-margin customers, similar to Apple's, and will have more cash coming in to give it the option to spend on more expensive rollouts.

 

 

 

[vince]

Interesting discussion of the relative spectrum holdings of Verizon and T-Mobile:  https://www.lightreading.com/5g/verizons-c-band-vs-t-mobiles-25ghz-which-is-better-for-5g/d/d-id/768085?_mc=RSS_LR_EDT

 

Thanks KJP for sharing.

 

T-Mobile & Verizon are approaching the market from opposite ends:

• T-Mobile wants to go after value consumers with its low-band that has lower cost of deployment but also has lower speed.
  
• Verizon wants high-end, high-margin consumers and is willing to pay high-cost for highband rollout for consumers in dense areas, stadiums & airports even though it is the highest cost to roll out due to small cells, but it is the one that offers highest speed all the way up to 4.0 Gbps in dense areas with highest number of concurrent users.  Verizon has more high-band spectrum than any other carrier, and also rolling it out first for people to lookup to.
  

 

Both need mid-band in-between.  Overall, though, Verizon will be a higher margin, more profitable business because of high-end, high-margin customers, similar to Apple's, and will have more cash coming in to give it the option to spend on more expensive rollouts.

 

I hope your confidence in Verizon is justified.  I haven't owned it for a long stretch yet (owned it a couple times, including now but haven't held it for more than a year) but the stock has been very disappointing over the last 8 years and it was trading over 50 dollars in 1999.  Not what you would expect from a dominant business with competitive advantage in an industry that was growing unit volumes.  Anyone want to chime in with their thoughts as to why the stock has been flat?

[CorpRaider]

I think I get that TMUS strategery.  Nice set up for "convergence" and avoiding competing with wifi 6 too much.

[LearningMachine]

Interesting discussion of the relative spectrum holdings of Verizon and T-Mobile:  https://www.lightreading.com/5g/verizons-c-band-vs-t-mobiles-25ghz-which-is-better-for-5g/d/d-id/768085?_mc=RSS_LR_EDT

 

Thanks KJP for sharing.

 

T-Mobile & Verizon are approaching the market from opposite ends:

• T-Mobile wants to go after value consumers with its low-band that has lower cost of deployment but also has lower speed.
  
• Verizon wants high-end, high-margin consumers and is willing to pay high-cost for highband rollout for consumers in dense areas, stadiums & airports even though it is the highest cost to roll out due to small cells, but it is the one that offers highest speed all the way up to 4.0 Gbps in dense areas with highest number of concurrent users.  Verizon has more high-band spectrum than any other carrier, and also rolling it out first for people to lookup to.
  

 

Both need mid-band in-between.  Overall, though, Verizon will be a higher margin, more profitable business because of high-end, high-margin customers, similar to Apple's, and will have more cash coming in to give it the option to spend on more expensive rollouts.

 

I hope your confidence in Verizon is justified.  I haven't owned it for a long stretch yet (owned it a couple times, including now but haven't held it for more than a year) but the stock has been very disappointing over the last 8 years and it was trading over 50 dollars in 1999.  Not what you would expect from a dominant business with competitive advantage in an industry that was growing unit volumes.  Anyone want to chime in with their thoughts as to why the stock has been flat?

 

I'll let others share.  In the meantime, here are my thoughts.

 

I have never owned it until recently at a price point below GOAT's purchase prices.

 

If memory serves right, I thought the FIOS-to-home investments were too expensive. 

When they bought Vodafone's share, I also thought they overpaid for Vodafone's share, but in the short few years, they were back at same 2.0 Debt-to-EBITDA ratios from before Vodafone share purchase.

 

I do agree with you that $53 Billion for the spectrum looks like a really high figure, and it might have been better spent on something else, but in the end, it probably won't end up hurting them because despite the high price paid, because of amortization and interest deductibility, it is actually cash-positive in terms of interest paid and taxes saved.  Let's see what long-term interest rates and duration they are able to lock in, and then pay back in deflated dollars in case of inflation scenario.

[KJP]

Interesting discussion of the relative spectrum holdings of Verizon and T-Mobile:  https://www.lightreading.com/5g/verizons-c-band-vs-t-mobiles-25ghz-which-is-better-for-5g/d/d-id/768085?_mc=RSS_LR_EDT

 

Thanks KJP for sharing.

 

T-Mobile & Verizon are approaching the market from opposite ends:

• T-Mobile wants to go after value consumers with its low-band that has lower cost of deployment but also has lower speed.
  
• Verizon wants high-end, high-margin consumers and is willing to pay high-cost for highband rollout for consumers in dense areas, stadiums & airports even though it is the highest cost to roll out due to small cells, but it is the one that offers highest speed all the way up to 4.0 Gbps in dense areas with highest number of concurrent users.  Verizon has more high-band spectrum than any other carrier, and also rolling it out first for people to lookup to.
  

 

Both need mid-band in-between.  Overall, though, Verizon will be a higher margin, more profitable business because of high-end, high-margin customers, similar to Apple's, and will have more cash coming in to give it the option to spend on more expensive rollouts.

 

I hope your confidence in Verizon is justified.  I haven't owned it for a long stretch yet (owned it a couple times, including now but haven't held it for more than a year) but the stock has been very disappointing over the last 8 years and it was trading over 50 dollars in 1999.  Not what you would expect from a dominant business with competitive advantage in an industry that was growing unit volumes.  Anyone want to chime in with their thoughts as to why the stock has been flat?

 

I'll let others share.  In the meantime, here are my thoughts.

 

I have never owned it until recently at a price point below GOAT's purchase prices.

 

If memory serves right, I thought the FIOS-to-home investments were too expensive. 

When they bought Vodafone's share, I also thought they overpaid for Vodafone's share, but in the short few years, they were back at same 2.0 Debt-to-EBITDA ratios from before Vodafone share purchase.

 

I do agree with you that $53 Billion for the spectrum looks like a really high figure, and it might have been better spent on something else, but in the end, it probably won't end up hurting them because despite the high price paid, because of amortization and interest deductibility, it is actually cash-positive in terms of interest paid and taxes saved.  Let's see what long-term interest rates and duration they are able to lock in, and then pay back in deflated dollars in case of inflation scenario.

 

It's a good point that Verizon Wireless the business is different than an investment in the equity of Verizon Communications, Inc.  To get good shareholder returns over time, I think a business needs to get good returns on the capital it retains and reinvests.  As LearningMachine noted, two of company's major capital allocation decisions of the last 15 years (Vodafone buyout price and FIOS) may not have been very good.

 

Along those lines, I note that Verizon's lead independent director has been on the Board since 2006, so was involved in those decisions.  The current CEO, Hans Vestberg, came aboard in 2017.  During the prior decade, he was CFO and then CEO of Ericsson.  As far as I can tell, Ericsson's total shareholder return during his tenure (including reinvested dividends) was negative:  https://www.ericsson.com/en/investors/shareholder-information/total-return-and-share-graph

 

That 30,000 foot view may obscure a lot of important detail, but it's not very encouraging that the people in charge don't appear to have produced good shareholder returns over rather long periods of time.  But again, that doesn't mean Verizon Wireless the business won't put out a great product and cause pain for cable companies.

[kab60]

When you look at the different players, it reminds me a bit of Berkshire Hathaway the textile company. They keep investing to get ahead, but competitors do the same, and value accrues to customers. There are some very interesting things about Verizon, but my base scenario would be stable market share % which means growth should come from broadband@home. If that was to happen, and they could sweat their assets more and improve returns, it might be interesting, but it would take some conviction, and I think Vince makes some very compelling arguments for why it'll be tougher than the companies signal. The track record is atrocious, as KJP stated, so you'd have to be pretty sure the industry is at an inflection.

 

Even if I could get there, I look at alternatives, and it gets a little silly. British American Tobacco trades at a 12,4 pct. FCF yield, 8 pct. dividend yield, is equally resilient, grows faster and most importantly doesn't need to invest in the business to grow. And you have buybacks coming up. It just seems like a much lower hurdle to clear.

 

Good luck to all, tons of thoughtful inputs.

 

[dwy000]

I doubt anyone is investing in Verizon as an alternative to Gamestop or Tesla.  This stock will never double over the year or surprise with double digit growth rates. For me it started as a cash alternative and inflation hedge and over the 14 years or so I've held it, between the dividends, the spinouts and the stock price I have a low double digit IRR.  Thats better than I was looking for.

 

But thats backwards not forwards.  Right now you have $22bn of free cash flow on $230bn of market cap.  Growing at GDP+ in one of the stablest industries out there.  Competition has been reduced to 3 rational players (who knows what Dish does but if you can argue returns for Verizon are subpar, how does Dish make it work from scratch).  And there aren't many fast growing, earnings-dont-matter companies out there that don't require connectivity.

 

I'm more than happy to sit here and generate a remarkably stable 10% baseline return over the next 15 years and sleep very soundly.  The surprises from the industry and from $55/share are going to be weighted to the upside.

[LearningMachine]

I doubt anyone is investing in Verizon as an alternative to Gamestop or Tesla.  This stock will never double over the year or surprise with double digit growth rates. For me it started as a cash alternative and inflation hedge and over the 14 years or so I've held it, between the dividends, the spinouts and the stock price I have a low double digit IRR.  Thats better than I was looking for.

 

But thats backwards not forwards.  Right now you have $22bn of free cash flow on $230bn of market cap.  Growing at GDP+ in one of the stablest industries out there.  Competition has been reduced to 3 rational players (who knows what Dish does but if you can argue returns for Verizon are subpar, how does Dish make it work from scratch).  And there aren't many fast growing, earnings-dont-matter companies out there that don't require connectivity.

 

I'm more than happy to sit here and generate a remarkably stable 10% baseline return over the next 15 years and sleep very soundly.  The surprises from the industry and from $55/share are going to be weighted to the upside.

 

Great discussion by everyone.

 

Well said dwy000.  2020 Cash Flow from Operations was $41.8 Billion on market cap of $230 Billion before their capital expenditures, which includes fiber backbone, etc. That is 18.2%. This is the kind of high quality cashflow that belongs in Buffett's hands in Berkshire Hathaway to invest.  Where else can Buffett get 18.2% cashflow on his cash to invest further?  No wonder, he was trying it hide it. Like BHE, he would probably let fiber backbone, small cell high-band-5G investments continue.  For spectrum purchases, not sure he would have paid the same high price, but I'm sure he would like to consolidate spectrum purchases all in one entity if he had his way.

 

Fiber-to-home was expensive.  Vodafone share looked expensive to me at the time, but interesting how they were able to generate so much cash to get down to same Debt-to-EBITDA level - who else can swallow such a huge purchase.  Perhaps, they knew more about their business cashflows were going to go up than Vodafone did.  Regarding spectrum, neither AT&T nor T-Mobile could swallow such a purchase.

 

This is not like the original Berkshire Hathaway textile mills, because cashflows from business are going up, they don't have to have a praying session to increase the price by a cent, and this is inflation-protected business because spectrum is not equipment that needs to be replaced.  Spectrum purchases will end also when there is no more spectrum to be auctioned. Sure value is accruing to customers in terms of data speeds, etc., but value is accruing to them also in terms of cashflows and also in terms of long-term scarce spectrum ownership. 

 

Let's see what Berkshire's 13F shows in April, and what opening of Stadiums does this summer.

[KJP]

between the dividends, the spinouts and the stock price I have a low double digit IRR. 

 

Good point that just eyeballing the long-term chart as I have done misses spin-outs (and obviously dividends). 

[LearningMachine]

We should think about spectrum rights similar to land rights, i.e. right to exclude others from using your land/spectrum, except that all of spectrum might be more easily monetizable, and here they are acquiring a high percentage of the equivalent of the U.S. continental land, while customers and IRS are paying them for it!

[boilermaker75]

https://spectrum.ieee.org/the-institute/ieee-member-news/this-executive-director-is-leading-verizon-into-the-future-through-quantum-computing

[vince]

I doubt anyone is investing in Verizon as an alternative to Gamestop or Tesla.  This stock will never double over the year or surprise with double digit growth rates. For me it started as a cash alternative and inflation hedge and over the 14 years or so I've held it, between the dividends, the spinouts and the stock price I have a low double digit IRR.  Thats better than I was looking for.

 

But thats backwards not forwards.  Right now you have $22bn of free cash flow on $230bn of market cap.  Growing at GDP+ in one of the stablest industries out there.  Competition has been reduced to 3 rational players (who knows what Dish does but if you can argue returns for Verizon are subpar, how does Dish make it work from scratch).  And there aren't many fast growing, earnings-dont-matter companies out there that don't require connectivity.

 

I'm more than happy to sit here and generate a remarkably stable 10% baseline return over the next 15 years and sleep very soundly.  The surprises from the industry and from $55/share are going to be weighted to the upside.

 

I agree that is a good return in a very low risk investment and looks like, from these prices, it will continue to provide double digit returns going forward.  You don't need rapid growth in Revenues to generate good shareholder returns when starting at a low multiple.  Steady mid single digit growth rates in per share earning power will generate fantastic returns, assuming they do not set retained earnings on fire.  .  I like it

[dwy000]

I doubt anyone is investing in Verizon as an alternative to Gamestop or Tesla.  This stock will never double over the year or surprise with double digit growth rates. For me it started as a cash alternative and inflation hedge and over the 14 years or so I've held it, between the dividends, the spinouts and the stock price I have a low double digit IRR.  Thats better than I was looking for.

 

But thats backwards not forwards.  Right now you have $22bn of free cash flow on $230bn of market cap.  Growing at GDP+ in one of the stablest industries out there.  Competition has been reduced to 3 rational players (who knows what Dish does but if you can argue returns for Verizon are subpar, how does Dish make it work from scratch).  And there aren't many fast growing, earnings-dont-matter companies out there that don't require connectivity.

 

I'm more than happy to sit here and generate a remarkably stable 10% baseline return over the next 15 years and sleep very soundly.  The surprises from the industry and from $55/share are going to be weighted to the upside.

 

 

I agree that is a good return in a very low risk investment and looks like, from these prices, it will continue to provide double digit returns going forward.  You don't need rapid growth in Revenues to generate good shareholder returns when starting at a low multiple.  Steady mid single digit growth rates in per share earning power will generate fantastic returns, assuming they do not set retained earnings on fire.  .  I like it

 

Vince, was that really you?  Did someone steal your CoBF password?  You made some very coherent points about why it may have trouble competing with cable (very legit) and that the stock price has, frankly, sucked over the past 8 years.  I thought you were firmly on the other side of the fence.  Kudos to you in being able to remain competely analytical about it and be open to alternatives.  So rare on the internet.

[LC]

Speaking of valuation/multiple expansion:

 

Attached is the 10 year PE and EV:EBITDA trading range.

[dwy000]

Speaking of valuation/multiple expansion:

 

Attached is the 10 year PE and EV:EBITDA trading range.

 

What app is that LC?

[vince]

I doubt anyone is investing in Verizon as an alternative to Gamestop or Tesla.  This stock will never double over the year or surprise with double digit growth rates. For me it started as a cash alternative and inflation hedge and over the 14 years or so I've held it, between the dividends, the spinouts and the stock price I have a low double digit IRR.  Thats better than I was looking for.

 

But thats backwards not forwards.  Right now you have $22bn of free cash flow on $230bn of market cap.  Growing at GDP+ in one of the stablest industries out there.  Competition has been reduced to 3 rational players (who knows what Dish does but if you can argue returns for Verizon are subpar, how does Dish make it work from scratch).  And there aren't many fast growing, earnings-dont-matter companies out there that don't require connectivity.

 

I'm more than happy to sit here and generate a remarkably stable 10% baseline return over the next 15 years and sleep very soundly.  The surprises from the industry and from $55/share are going to be weighted to the upside.

 

 

I agree that is a good return in a very low risk investment and looks like, from these prices, it will continue to provide double digit returns going forward.  You don't need rapid growth in Revenues to generate good shareholder returns when starting at a low multiple.  Steady mid single digit growth rates in per share earning power will generate fantastic returns, assuming they do not set retained earnings on fire.  .  I like it

 

Vince, was that really you?  Did someone steal your CoBF password?  You made some very coherent points about why it may have trouble competing with cable (very legit) and that the stock price has, frankly, sucked over the past 8 years.  I thought you were firmly on the other side of the fence.  Kudos to you in being able to remain competely analytical about it and be open to alternatives.  So rare on the internet.

 

it's me dwy, lol, and it is at least the third time this week that I said I like Verizon stock.  I still don't like VZ's chances to disrupt cable's competitive position (they don't need to be successful here and in fact it might be more attractive if they weren't spending anything on broadband, but I think I understand why they are) and the fact that the stock hasn't moved in 8 years has made it more attractive.  VZ's rev growth guidance does not assume much wireless broadband share, yet a consistent 4% can do wonders when starting with a high free cash flow yield and smart capital allocation.  What really got me interested in VZ is their tighter focus on their core asset (and innovating on top of that as opposed to acquisitions in different businesses and trying to put them together) combined with their focus and success at cutting costs.  This will surely increase their returns on invested capital which imo is the best single metric to keep an eye on.  A rising return without a rising stock is a good place to look for value. 

[LC]

Speaking of valuation/multiple expansion:

 

Attached is the 10 year PE and EV:EBITDA trading range.

 

What app is that LC?

 

This was Koyfin.com

 

I just started playing with it, so I cannot comment on the data quality.

[Spekulatius]

A couple of scattered comments:

 

VZ ~9-10% FCF yield is mentioned, but that number does not include the infrequent spectrum purchases. Those are a real cost of doing business though. The recent spectrum purchase is ~ 2.5 years of FCF. looking back at VZ numbers, they haven’t really reduced debt or purchased back shares over time and their revenues haven’t gone up much either since the merger 2014. It looks like in aggregate (corr), the FCF has covered the dividend, but not more.

 

On DISH - that’s an interesting case too. My understanding is that DISH has to buildout a nationwide 5G network, or they will lose their spectrum. So I guess that’s what they will have to do. They have some mostly subscribers (which ride on TMUS Network for the time being) that they got as scraps from the TMUS - Sprint merger but it’s hard to see this going anywhere on a standalone basis. So since they can’t merge with any of the big three wireless carriers, they will have to join forces with either the cable cos (Charter, Comcast) or perhaps  get a buyout from a deep pocketed FANG to do something new. I agree that DISH CEO Ergen is scrappy and will figure something out.

In my opinion, the likely path will be that DISH joins

[LearningMachine]

VZ ~9-10% FCF yield is mentioned, but that number does not include the infrequent spectrum purchases. Those are a real cost of doing business though. The recent spectrum purchase is ~ 2.5 years of FCF. looking back at VZ numbers, they haven’t really reduced debt or purchased back shares over time and their revenues haven’t gone up much either since the merger 2014. It looks like in throats, the FCF has covered the dividend, but not more.

 

The infrequent spectrum purchases are not an expense but an investment for the long term, similar to BHE investing in long term projects and not returning cash to parent for now.  They will stop when no more spectrum needs to be auctioned.

 

So are the fiber backbone investments that are included in the $18B capital expense figure.  Adding back those investments takes 2020 Cash Flow from Operations to $41.8 Billion on market cap of $230 Billion before their capital expenditures, which is 18.2%.

 

Yes, agreed some of the money could have been better invested.  That is why that $41.8 Billion cash from operations for the mere cost of $230B market cap belongs in the hands or at least influence of the maestro to invest.  Let's see what the Berkshire April 13F shows.

[LC]

As to whether the spectrum & fiber buildouts are investments or expenses:

 

Do they provide incremental revenues, or do they maintain current revenues?

[LearningMachine]

As to whether the spectrum & fiber buildouts are investments or expenses:

 

Do they provide incremental revenues, or do they maintain current revenues?

 

That's a great question.

 

Fiber buildouts (instead of paying cableco for data) and spectrum purchases (instead of letting them land in a competitor's hands) are needed to

• (1) widen the moat with respect to cablecos & other telcos,
  
• (2) strengthen the strategic market position with loyal customers that strengthens the monopsony power with respect to Apple, Disney, Discovery, etc., to be able to sell more services to loyal customers in the future
  
• (3) have some incremental revenues now and more in the future through additional monetization of that spectrum & backbone
  

 

 

 

[KJP]

As to whether the spectrum & fiber buildouts are investments or expenses:

 

Do they provide incremental revenues, or do they maintain current revenues?

 

With maintenance CapEx defined as the amount of capital expenditure needed to keep inflation-adjusted volumes flat, I view the recent 5G spectrum purchases as mainly maintenance CapEx.  They need that spectrum to build out a 5G wireless offering.  If they didn't build out such an offering, they would lose their existing wireless customers to their competitors who are building such networks.  Over a longer timeframe, a nationwide 5G network might also open up new revenue opportunities (home broadband; edge computing), so potential growth from it should be considered.  But the 5G spectrum and buildout looks primarily maintenance to me.  But just because it's maintenance CapEx doesn't mean it's bad; it's a question of how much you can earn on that enlarged capital base.  (Admittedly a fiber backhaul investment doesn't fit neatly into this picture, because it will show up mostly in better margins, rather than more revenue.)

 

I see the ongoing $18 billion as also maintenance CapEx for the same reasons.  If you look at the last five years of Verizon's revenue growth, it's very hard to see how it isn't, particularly when what they are marketing is a better quality network at a higher price.  (I note that is possible some of this spending is for growth but the revenue impact is masked by other segments that are declining.)

 

I would apply the same logic to cable companies and classify most of their CapEx as maintenance. 

[KJP]

As to whether the spectrum & fiber buildouts are investments or expenses:

 

Do they provide incremental revenues, or do they maintain current revenues?

 

That's a great question.

 

Fiber buildouts (instead of paying cableco for data) and spectrum purchases (instead of letting them land in a competitor's hands) are needed to

• (1) widen the moat with respect to cablecos & other telcos,
  
• (2) strengthen the strategic market position with loyal customers that strengthens the monopsony power with respect to Apple, Disney, Discovery, etc., to be able to sell more services to loyal customers in the future
  
• (3) have some incremental revenues now and more in the future through additional monetization of that spectrum & backbone
  

 

Perhaps it's easier to get at this issue with a specific example.  The five-year financials are on page 7 of Verizon's 2019 annual report:  https://www.verizon.com/about/sites/default/files/2019-Verizon-Annual-Report.pdf  (I use 2019 because I don't think the 2020 version with the five-year trailing financials is out yet.)

 

They show essentially no growth in either revenue or operating income over that five-year period.  Cash flow from Ops and FCF were also higher in 2015 (pg 43: https://www.verizon.com/about/sites/default/files/annual_reports/2016/downloads/Verizon-AnnualReport2016.pdf), but there's noise from working capital movements and other things.

 

From those facts, it appears that what they're spending on CapEx is mainly maintenance.  What does that admittedly very high-level "analysis" (might be too generous a word) overlook or miss?

 

[LC]

I posed the question but personally I lean more towards KJP's conclusion.

 

The majority of network buildout costs (whether it be fiber or spectrum) is meant to maintain the company's competitive position. So really, I don't predict much market share being taken from competitors with Verizon's spectrum buildouts. Rather, they maintain their current share and perhaps can charge a premium to a subset of existing customers in exchange for the service improvements that 5G will bring.

 

Perhaps 75% maintenance / 25% growth, just to eyeball it.

 

To address LearningMachine's points (I am only a human who tries to learn occasionally, so bear with me :D )

 

(1) widen the moat with respect to cablecos & other telcos,

But other providers are spending as well to do the same - so overall each market player treads water

 

(2) strengthen the strategic market position with loyal customers that strengthens the monopsony power with respect to Apple, Disney, Discovery, etc., to be able to sell more services to loyal customers in the future

Again it is a similar phenomena. Verizon is already the leading service partner for these consumer brands, network improvements are meant to maintain their existing position and fend off 2nd/3rd place participants, who are again also spending on network improvements

 

(3) have some incremental revenues now and more in the future through additional monetization of that spectrum & backbone

I agree with this. I think they will be able to upcharge the customer base for an improved 5G/fios network, but I am not sure how much incremental revenue they will be able to secure above inflation.

[LearningMachine]

I posed the question but personally I lean more towards KJP's conclusion.

 

The majority of network buildout costs (whether it be fiber or spectrum) is meant to maintain the company's competitive position. So really, I don't predict much market share being taken from competitors with Verizon's spectrum buildouts. Rather, they maintain their current share and perhaps can charge a premium to a subset of existing customers in exchange for the service improvements that 5G will bring.

 

Perhaps 75% maintenance / 25% growth, just to eyeball it.

 

To address LearningMachine's points (I am only a human who tries to learn occasionally, so bear with me :D )

 

(1) widen the moat with respect to cablecos & other telcos,

But other providers are spending as well to do the same - so overall each market player treads water

This spending will stop when there are no more auctions.

 

(2) strengthen the strategic market position with loyal customers that strengthens the monopsony power with respect to Apple, Disney, Discovery, etc., to be able to sell more services to loyal customers in the future

Again it is a similar phenomena. Verizon is already the leading service partner for these consumer brands, network improvements are meant to maintain their existing position and fend off 2nd/3rd place participants, who are again also spending on network improvements

They have only now started to monetize their market power with Disney, Discovery & Apple, and now more streaming services.  So, the impact of these have not shown up yet.

 

(3) have some incremental revenues now and more in the future through additional monetization of that spectrum & backbone

I agree with this. I think they will be able to upcharge the customer base for an improved 5G/fios network, but I am not sure how much incremental revenue they will be able to secure above inflation.

 

Overall, investments could be better and need to be made or influenced by Buffett.