Image: Hans Vestberg. Source: Verizon
Finally, good news for Verizon (VZ). New CEO Hans Vestberg has been rewriting the rules and changing the future for the company. Since taking over, he has been cutting away the parts of the company which made no sense and has been focusing instead on areas which will lead to growth going forward. This is a long journey on which he embarked, but so far I like the path he is taking and what it means for the future of Verizon. Now, let’s get into the details.
There is a growth curve that every product and every company rides. This growth curve rises, then crests, then falls. Some curves are longer while others are shorter.
Wireless carrier growth wave rises, then crests, then falls
Verizon went way off track during the last decade. The company headed in new directions — which quite frankly made no sense to me — by acquiring AOL and Yahoo. These are two companies that were once growth companies, but which have since crested and are now on the falling side of the growth curve.
Now, Verizon is finally getting back on course and in my opinion, starting to head in the right direction.
Acquiring AOL and Yahoo made no sense for Verizon
Verizon was a company which once was on a rapid growth curve, but which during the last decade veered off that success track with miserable results.
It was not always that way. In fact, Verizon was a leader in wireless growth with the moves to 2G, 3G and 4G over the last couple of decades.
Sure, the company had its own share of challenges with quality and reliability in areas around the country, but generally speaking, it was a growth company in the wireless space.
Then things started to slow down. The move to wireless data usage and super smartphones like iPhone and Android, which once were hot, were now cooling.
It’s not that these things were not important. It was that everyone who wanted to use a smartphone and wireless data services, already was.
The game has changed over the last decade. Today, carriers must both protect their customer base and try to win new users from their competitors.
Verizon, AT&T, T-Mobile, Sprint needed to find new areas of growth
That meant Verizon, AT&T, T-Mobile and Sprint needed to start finding new ways to grow in order to keep their investors happy.
So, the nation’s wireless carriers started moving into new areas, acquiring other companies. None of it made much sense to users, investors or employees.
The reason for doing it, however, was simple. The mission was to find a path to keep investors happy. It’s really just that simple.
Bottom line, companies must keep investors happy. If not, they will go elsewhere. That would lead to a collapse of the share price. That must be avoided at all costs.
Verizon was in search of growth with AOL and Yahoo, but failed
- Verizon acquired AOL and Yahoo. That failed.
- AT&T acquired DirecTV and what became Warner Media with Warner Brothers, CNN and more. That failed.
- T-Mobile dabbled in areas like wireless pay TV, which failed, but it kept busy for year trying to merge with Sprint, which was eventually completed.
After the company's previous mistakes, new Verizon CEO Hans Vestberg found it easy to quickly move away from AOL and Yahoo and focus on real growth opportunities as the wireless industry moved rapidly toward 5G.
Vestberg moved Verizon toward 5G wireless
That was the good news.
The challenging part of the equation is the same the wireless industry faces as it upgraded from 2G to 3G to 4G. The rub is, carriers must spend billions to upgrade the networks before users will pay more for 5G services.
Today, every wireless carrier is focused on the rapid move to 5G. This is a huge growth opportunity, but the carriers need to invest billions of dollars long before they will start to see revenue growth.
That’s the catch.
Competition has every wireless carrier rushing toward 5G
And it’s not like the carriers can slow their investment. The reason is competition.
Their main competitors are all rushing to offer 5G. So, to keep from getting left behind, they must all rush to invest in 5G as well.
That’s good, except this necessary investment is huge, and must happen years before any revenue benefit.
Think of this like the case of spending billions of dollars to pave new roads before new business and people start to build stores and homes and pay taxes.
It can be painful, but this is the reality.
5G wireless investment precedes revenue growth
Investment in the networks always precedes growth. And that is where all wireless carriers like Verizon, T-Mobile, AT&T, US Cellular, C Spire Wireless and others find themselves today.
This is a law of nature in the wireless world. It happened before, and it will happen again.
It is the same law that governed events as we upgraded from 2G to 3G to 4G and now to 5G. And it will be the same law that applies as we next upgrade to 6G and beyond.
All that being said, it looks like Verizon is finally getting back on track. It is rapidly moving into 5G, something that will take years to complete, but which is the right direction.
Verizon is back on the right growth path
Remember, all wireless carriers are only in the very early stages of this 5G transformation.
I think Vestberg is making the right moves that will benefit Verizon, its workers, its customers and its investors both in the short-term and in the long-term.
The problem is that there is a period of time between building the 5G network and generating associated revenue.
Just remember, this is the typical wireless industry model. They must invest in their 5G networks years before they realize growth. This order is the way the industry has operated for decades.
So, while earnings growth will still take time, I believe based on what I see today, the good news is Verizon seems to be back on the right track thanks to CEO Hans Vestberg.
Jeff Kagan is an Equities News columnist. Kagan is a Wireless Analyst, Technology Analyst and Commentator who follows Telecom, Pay TV, Cloud, AI, IoT, TeleHealth, Healthcare, Automotive, Self-Driving cars and more. Email him at [email protected]. His web site is www.jeffKAGAN.com. Follow him on Twitter @jeffkagan and on LinkedIn at www.linkedin.com/in/jeff-kagan/.
Equities News Columnist: Jeff Kagan
Source: Equities News