Verizon, Oh Verizon, Where Are You Going?


Verizon's strategy direction over the past few years has been all over the map.  Mobile video and selling ads alongside content were supposed to be big revenue generators after the purchase of AOL.  Apparently that wasn't enough content and data to make a difference, so Verizon is now plunking down over $4.5 billion to purchase a security-wounded Yahoo – again, because it wants user data for advertising and content for ad sales.   It's also in a rush to deploy 5G and after spending years ignoring demands for unlimited wireless data plans, it is now offering one.   Can acquisitions, pushing a new technology, and playing follow-the-leader be successful?

Last June, Verizon closed a $4.4 billion deal to buy AOL. Executives said the acquisition would enable the company to layer AOL's advertising strengths and growth in video onto Verizon's network. Not satisfied with content, Verizon went after a failing Yahoo for $4.8 billion.  Two massive security breaches later, Verizon has knocked off a whole 7 percent – $350 million – to lower the price to around $4.48 billion, plus a liability split with seller Altaba in case of future lawsuits resulting from data breaches.

Pro-merger analysts are spinning the liability split as a further price cut based upon how badly Yahoo will be sued by state attorney generals, the Federal Trade Commission, international regulators, and/or general class action suits by Yahoo users or commercial partners.  Why Verizon doesn't simply sit back and let Yahoo pay 100 percent of the liabilities, then work out a better price, suggests the company just wants to buy the company and has money to burn.

A rush to get into 5G before standards are established just strikes me as wrong, especially since there's a lot of up-side left in LTE.  But Verizon, like AT&T and Google, sees 5G-based fixed wireless as the latest bypass measure to deploying fiber everywhere.  The company plans to offer “pre-commercial” services by mid 2017 in 11 U.S. cities, including Atlanta, Dallas, Denver, Houston, Miami, Seattle and Washington D.C.  Speeds are expected to be at gigabit per second or faster, with trials covering several thousand customer homes and businesses.

Verizon has its own pre-5G standards group, with equipment designed to be upgradeable to whatever the 3GPP 5G spec is when established a couple years (or longer – we're talking specifications) down the road.   But full scale deployment to a production (working) network is more than standards.  The frequencies for 5G are pretty much line-of-sight, so there's more complexity to putting in a bunch of 5G cells than simply places to put boxes and power.  Some groundwork has no doubt already been done with LTE network re-enforcements (more below), but the path to bankruptcy is littered with previous line-of-site wireless efforts over the decades.

T-Mobile restarted the unlimited wireless data trend with its plan, leading to this February's unlimited data war, with all four major carriers trying to outdo the others.  Verizon was the last to jump into the unlimited pool a couple weeks ago, leaving mobile analysts and press in an exalted state comparing pricing, features, loopholes, and qualification among service providers.  

But offering unlimited means Verizon executives have to eat words said less than six months ago. “At the end of the day, people don't need unlimited plans,” Chief Financial Officer Fran Shammo told an investor conference in September 2016.   Shammo's comments are reflective of the company's long standing culture of “We know what's good for you” when it comes to broadband and reflects a reactive stance that can be traced back to decades when the company told wireline customers they'd never need more than 10 Mbps, then 100 Mbps for home service, only to find cable moving faster to offer faster services.  

It also cuts into the earlier spin of Verizon arguing it had a better network than competitors. The company offered/supported less bandwidth per subscriber than T-Mobile, according to analyst commentary in a Fortune piece. Over the past two years, it has been quietly pushing for the deployment of microcells to avoid overcrowding if it moved to unlimited data.  Does this mean Verizon now has a “More Best” network since it now supports unlimited?  Both T-Mobile and Sprint have steadily picked away at Verizon's “Best Network” messaging, and some of the things said to support unlimited undercut previous statements in my view.

Even all these different efforts aren't enough for Verizon. The company is reportedly in talks to buy cable company Charter Communications, the second largest cable company in the U.S.  Analysts say the move is driven by challenges in wireless and poor results in online video, with cable driving demand for wireless customers through the bundling of wireless and wireline services.  If purchases of AOL to drive mobile video haven't worked out as planned, I'm not so sure that shelling out billions more for a non-telco broadband company will prove more successful. 

Edited by Alicia Young
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Contributing Editor

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