Verizon may lower network Capex in 2017 after revenue dips in 2016

Verizon Wireless LTE Advanced network
US telecom giant Verizon is planning to make an investment of $16.8 billion to $17.5 billion towards Capex (capital expenditure) in 2017.

During 2016, Verizon invested $17.1 billion in capital expenditures for its networks.

Verizon said its operating revenues fell 5.6 percent to $32.3 billion in Q4 2016 and dipped 4.3 percent to $126 billion in 2016.

Verizon is expecting nil growth in its revenue in 2017.

Verizon posted net income of $4.6 billion with a net income margin of 14.2 percent in Q4 2016.

Verizon said its IoT (Internet of Things) revenues, led by telematics, have increased 21 percent to $243 million in Q4 2016. Verizon expects to sustain this trend in IoT revenue growth. Including acquisitions, IoT revenues increased more than 60 percent in fourth-quarter 2016.

“We expanded our customer base in competitive wireless and broadband markets in Q4. We enter 2017 with confidence, based on our investments in next-generation networks and the new capabilities we have acquired. Our goal is to continue to earn our customers’ loyalty every day in a rapidly expanding mobile-first digital world,” said Verizon CEO Lowell McAdam.

Competitors’ unlimited data plans have limited Verizon’s subscriber growth in Q4.

Verizon’s revenue fell 5.6 percent — due to the divestment of wireline business in three markets to Frontier Communications in April and lower wireless ARPU stemming from customers migrating to nonsubsidized pricing plans.

“Verizon’s wireless revenue growth was limited by its lackluster postpaid phone net additions, which dropped to 167,000 from 449,000 as the carrier struggled to attract holiday shoppers against the newly launched T-Mobile One and Sprint Unlimited Freedom unlimited data plans,” said Steve Vachon, analyst at TBR.

ALSO READ: TBR’s analyst commentary on Verizon earnings

TBR said improving margins and profitability will take preference over revenue and subscriber growth over the next two years as the company continues to retire nonstrategic assets and business segments to fuel investments in IoT, 5G and fiber. Wireless revenue will continue to decline for the foreseeable future as Verizon focuses on retaining postpaid premium customers while T-Mobile and Sprint garner higher phone additions through their unlimited data programs.

Recent IoT acquisitions will help Verizon attract smart cities contracts as the carrier is growing its portfolio in areas such as connected lighting (Sensity Systems), telematics (Telogis and Fleetmatics) and Wi-Fi connectivity (LQD Wi-Fi).

Verizon will pursue additional small-scale acquisition in 2017 to gain a competitive advantage over AT&T and make greater headway in verticals including utilities, agriculture and connected health.

Amid slowing postpaid phone subscriber additions, Verizon seeks to improve wireless margins via recent initiatives including raising activation rates and discontinuing offering equipment subsidies to existing customers in January 2017.

Though these moves will allow Verizon to stabilize its wireless margins in 2017, eliminating postpaid contracts will likely cause an uptick in churn, as the carrier was the last holdout in eliminating the plans entirely. The move will result in less frequent upgrades and wireless customers opting for less expensive smartphones to offset the cost of purchasing unsubsidized devices.

Verizon is re-emphasizing its prepaid segment to attract value-minded customers, refraining from undercutting T-Mobile and Sprint to gain postpaid customers. To preserve ARPU, Verizon eliminated its two lowest-tiered prepaid plans in November and is steering customers to its $50 and $70 plans that feature more data than comparable postpaid plans.