Verizon has lost its network advantage

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 38:31

   Your analysis is that Verizon is by far the weakest here. They have the most to lose. Explain why that is. Well, and also one other thing to mention is you have a very active FCC chair that would like to raise and put on his resume $100 billion from Spectrum Auctions. So, you're right. They're going to talk about 6G again and have to come up with some type of revenue stream to basically justify getting this money. It's going to be a lot harder, though. They're already pretty levered.

2. 38:57

   They've got a new competitor. Now, in terms of Verizon, the issue is that AT&T has seen this thing developing for some time. So, they've built a network where it's fiber. So, there's only so much that wireless can do where a fiber network is ultimately your best connection. So, if you think about customers that own fiber and wireless, very high value, very low churn customers. That's been their strategy. They're plodding along. They're going to get their 2% or 3% revenue growth and just kind of pay their dividend and do their thing, right? That is the standard telco. T-Mobile didn't have that. They've got the dynamics, like a lot of politics right now between Deutsche of telecom wanting to own it and, like, not wanting to pay a high price and how that all plays out. Verizon just made a lot of bad strategic bets on spectrum. I mean, media, I mean,

3. 39:45

   obviously, AT&T had their own issues, but at least they got out of DirecTV, you know, and Warner quick enough and have turned the ship. But, like, the media buying millimeter wave spectrum when they could have bought Echo Star and bought spectrum, even now, they're spectrum constrained compared to their competitors. And they need to go out and spend $10, $15 billion on the Echostar spectrum. And you have a new CEO in there that's not really a telco guy that's just doing his thing like, hey, we're just going to cut costs. The EBITDA is going to look good because they're just firing a bunch of people. And there's going to be a result. There is going to be an impact of firing that many people in the organization. It may appease investors to make the EBITDA look good for the next couple of quarters. But at some point, you have to show

4. 40:33

   and have a strategy for some type of revenue growth. What is Verizon's, you know, differentiation in the market right now? They have none, right? So, they're the Most, I think, in the crosshairs of where SpaceX and frankly, even the cable companies can continue to eat away at those customers. That is frankly surprising to me. And it's just my own history, right? I grew up in the Midwest. I went to college in the Midwest.

5. 40:56

   That was singular territory and it became AT&T. When I moved to New York, 2010, Verizon was the gold standard network in the Northeast. It was the one everyone had. It cost the most money because it was the best network. The iPhone coming to Verizon a couple of years later, huge deal. Verizon's network was so powerful at that time that they could try to force the BlackBerry storm down people's throats.

6. 41:20

   And they were confident enough that their network was the thing holding people to them. That was a worthwhile strategy. Obviously it didn't work. They made the wrong bet. You're saying they made the wrong bet on millimeter wave. They made the wrong bet on other spectrum acquisitions. The one that I'm not quite tracking is media, right? They did buy a bunch of dumb stuff. At one point, they owned Tumblr, which is just one of the most confusing media outcomes of all time.

7. 41:44

   But that stuff was all cheaper and easier for them to flip or shut down than AT&T buying all of Time Warner and putting out like a 4-3 black and white Justice League movie. How did AT&T survive that, but you're saying Verizon can't survive owning Yahoo? I mean, I think that's a fair pushback in that, you know, the media impact to Verizon was a lot less than AT&T. But these, again, were separate businesses. Obviously, it was a capital allocation issue for a period of years. But the decisions on the spectrum front and the competitive front, and frankly, the T-Mobile's impact, John Ledger's impact in taking away this, hey, we've got the best network, you know, left them in a spot where, you know, they were basically like, hey, we'll just keep increasing price on our customers and we'll get that 2% or 3% revenue growth.

8. 42:29

   And they just kind of lost the narrative of what they meant to customers. And I don't really think, you know, under the new CEO, that's been regained. And do you think their ability to say they have the best network is just gone? I think that's completely gone. That's the crazy thing about this, right? The networks are effectively commoditized. These networks are basically the same, right? And they're getting 60% margins.

9. 42:51

   That's what the whole thing with Dish Wireless, even if it wasn't on their network and you guys tested it wasn't on their network, You could have been buying AT&T's network at half price, right? It's crazy, the ARPU and the margins that these guys get for what is effectively a commoditized market. That's why the AT&T strategy is interesting, because at least they're trying to bundle that with a high-value fiber.

10. 43:11

    network. But for the other guys, it's just commoditized wireless. I would actually say the other strategic mistake Verizon made along the way was they got away from Fios. They decided it wasn't worthwhile. It seems like they're trying to reinvest in that now and go after that AT&T strategy. Yeah. I mean, I think given their lack of spectrum, I think they can only take fixed wireless so far. So you're right. I wouldn't be surprised if they got back to investing in fiber. The difference, obviously, Fios, you've got union issues and a lot of cost structure issues that they were dealing with. But I think the pivot to doing more fiber and perhaps laying off the fixed wireless, which is straining the network, is probably the right decision for them, what you'll see happen going forward.

11. 44:02

    I want to end on just a big picture question here. We have covered so many crazy telecom mergers,