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Breakingviews - Verizon stuck in neutral as rivals shift
October 19, 2017 / 8:24 PM / a month ago

Breakingviews - Verizon stuck in neutral as rivals shift

NEW YORK (Reuters Breakingviews) - Verizon’s perch as the No. 1 carrier in the United States looks secure. The $200 billion telecom firm reported a rise in wireless subscribers on Thursday. But the gap is narrowing. Cable rivals Comcast and Charter are also offering mobile services, AT&T is trying to become a media company and Sprint and T-Mobile may yet merge. A heavy debt load hobbles Verizon’s ability to quickly change lanes.

The ticker and trading information for Verizon is displayed on a screen at the post where it is traded on the floor of the New York Stock Exchange (NYSE) in New York City, U.S. June 9, 2016. REUTERS/Brendan McDermid

Verizon said it had a net addition of more than 600,000 wireless customers, including those for tablets and other devices, who pay a monthly bill in the third quarter. Earnings were flat at $3.7 billion, but $10 billion in cost savings targeted by Chief Executive Lowell McAdam over the next four years should help the bottom line.

Looming over Verizon is the chance that Sprint and T-Mobile US may finally combine. The third and fourth carriers in the United States argue that a tie-up would better position them to compete against Verizon and its peer AT&T. Adding to the pressure, both Comcast and Charter Communications are launching their own mobile initiatives. Sure, Comcast is using Verizon’s backbone for cellular but it would be unwise to underestimate the ability of Brian Roberts’ company to turn foe.

The options for Verizon to buy its way out of trouble are limited. Three years ago the telecom firm closed a $130 billion purchase of the remaining 45 percent stake of the venture Verizon Wireless from Vodafone. The amount of debt on the balance sheet - $117 billion as of the end of September – gives it limited flexibility.

There is a possibility of a bid for satellite distributor Dish, which has an enterprise value of about $40 billion, but AT&T sounds a cautious note about how big deals can pan out. The second-largest mobile carrier warned earlier it lost 90,000 U.S. video subscribers in the third quarter because of competition and weather. AT&T bought satellite firm DirecTV in 2015 for $67 billion and is preparing to close on its $109 billion deal for Time Warner.

McAdam may yet choose to copy AT&T’s media strategy and go beyond the $9 billion or so he spent on AOL and Yahoo, though paying a premium may be a stretch. Verizon has boasted of raising its dividend for 11 years in a row. If it sticks to that, it risks being stuck in neutral.

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