Can Verizon Justify Much More Investment in Fixed Networks Segment?

Verizon earned $32.3 billion in its fourth quarter of 2016, including about $3.2 billion from its fixed line mass market customers, while earning $23.4  billion from its mobile segment. In other words, all mass market (consumer and small business) revenues represented just under 10 percent of total revenues, while mobile represented about 72 percent of total revenues.

It is quite easy to argue that fixed network operations actually make less sense for Verizon than for most other telcos. Some might even argue whether it would make sense to get out of the fixed network business, if a buyer could be found.

The corollary is that regulatory burdens in the fixed networks area probably do not help Verizon make the case for robust fixed network investment. And that case would be difficult in any case.

Consider that Verizon, in its Fios areas, has 40 percent penetration of internet access services and about 34 percent adoption of its video entertainment services. Given that cable companies have nearly all the rest of the internet access share, while cable and satellite split the video share, it is hard to see how Verizon does much better in its Fios areas, no matter what  it does.

Wireline operating income was $414 million in fourth-quarter 2016, Compare that to mobile segment operating income of $6.3 billion.

Fixed networks are a small part of Verizon’s revenue, cash flow and profit (if any), while Verizon arguably does as well as it possibly could in that area. It is not a recipe for robust additional investment.

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