No Strategy Lasts Forever: Verizon Might Have to Change

Perhaps ironically, Verizon's mobile strategy--which made lots of sense when mobility drove revenue growth--now exposes the firm to greater risk than AT&T’s different strategy of business services and entertainment video.

Verizon earns 68 percent of total revenues from mobility, and all of that from the U.S. market. The current marketing war in U.S. mobile therefore has potential to harm Verizon’s revenue significantly more than AT&T, which earns just about 44 percent of total revenue from mobility.

AT&T earns nearly a quarter of total revenue from linear video subscriptions, about 73 percent of revenue from business services and entertainment. AT&T also has diversified into Mexico and Latin America, and is expected soon to enter the content business with its Time Warner acquisition.

To be sure, Verizon’s mobile advertising strategy (AOL and Yahoo) arguably will make Verizon a number-three supplier in the advertising venue business, behind Google and Facebook. But some will note that Verizon would be a distant third in a duopoly market.

It is not clear how much success Verizon will have at growing the AOL/Yahoo business beyond the $1 billion level, a sort of minimum threshold for any new business effort Verizon might hope to grow.

Given the pressures on Verizon revenue caused by the mobile price war, many speculate that, like it or not, Verizon now has to search elsewhere for an immediate source of cash flow, beyond mobile advertising or internet of things.

The issue, many would argue, is whether Verizon can come up with a strategy beyond “boost cash flow,” in a narrow sense. So far, some might argue, Verizon has no clear strategy for moving up the value chain at a level that would materially affect its revenues.

That an acquisition is the only path seems obvious. That the acquisition must be large also is obvious, to have any revenue impact. The downside is the debt load that would likely entail. Also, any new move virtually has to reduce the total revenue Verizon earns from mobile services.

Just as certainly, any acquisition able to move the revenue needle would have to center on consumer services, if a domestic acquisition is desired, either video distribution or content. There simply are no potential assets other than that, that immediately help Verizon boost revenue and cash flow.

Different options would exist if an international path is chosen (and Verizon has shown little interest in that regard, in recent years).

It will not be an easy choice, and the chances of a mistake are high.