Verizon writes off US$5.8 billion on enterprise as sales slow
VERIZON Communications is writing down the value of its business services division by US$5.8 billion, a sign of the company’s declining enterprise operations.
The wireless carrier said in a filing on Wednesday (Jan 17) that the non-cash goodwill impairment charge was due to “secular declines, as well as continuing competitive and macroeconomic pressure”. As a result of the impairment, Verizon said the balance of its business unit was US$1.7 billion at the end of 2023.
The decline is tied to the telecommunications giant’s legacy wireline operations, which provide fixed-line communications services for businesses through copper or fibre wires. This segment has seen demand drop considerably as its mobile business service has surged.
Verizon said its five-year strategic planning review resulted in lower financial projections for the business unit compared to the previous planning cycle.
“Verizon is recognising that results from this business are not stabilising and likely will continue to decline for the foreseeable future,” David Heger, an analyst at Edward D Jones & Co, said. Factors for its decline include competition from cable firms and reduced demand for voice lines, he said.
“This trend is not specific to Verizon,” Heger said, adding that other telecom companies face “similar declines in their wireline business services”. AT&T is in a similar situation, according to Bloomberg Intelligence.
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Still, this is one of the largest writedowns Verizon has taken in several years. In 2018, it slashed the value of its AOL and Yahoo media acquisitions by US$4.6 billion before eventually offloading its online media operations.
When asked by Bloomberg News if Verizon intended to likewise sell its wirelines unit, chief executive officer Hans Vestberg said, “The answer is no.” He declined to answer follow-up questions at the World Economic Forum’s annual meeting in Davos.
Verizon shares were down 1 per cent to US$38.89 at 12.12 pm in New York.
Industrywide pressure
The lowered five-year outlook “suggests the unit will take time to return to higher growth due to slack demand”, analysts at Bloomberg Intelligence wrote on Wednesday.
“The commercial wireline market has been shrinking for the better part of a decade now. Verizon and AT&T are the two largest players in the market by far, and they’re losing share to competitors,” Craig Moffett, an analyst at MoffettNathanson Research, said. “The forces at work here are secular, and they aren’t changing.”
Verizon’s wireline business revenue fell 8.1 per cent through the third quarter and is likely to stay muted in 2024, according to Bloomberg Intelligence.
The company’s business unit reported US$7.5 billion in revenue for the third quarter, slightly missing Wall Street expectations and down 4 per cent year over year. The segment has lagged its previous year’s performance in six of the last eight quarters.
As Verizon’s wireline revenue dropped, wireless revenue grew 2.9 per cent in the quarter with strong net additions, the company said.
The vast majority of Verizon’s revenue comes from its consumer unit, which includes mobile subscribers and broadband offerings such as wireless home internet. As the No 1 wireless carrier has sought to combat slowed mobile growth and heightened competition from cable giants, it has focused almost exclusively on growing its consumer business, Bloomberg previously reported.
Verizon also said on Wednesday that it is raising prices for some customers with legacy unlimited data plans. Starting Mar 1, customers with some older plans will pay an additional US$4 a month. It marks the second price increase in the past six months.
The company has been encouraging customers to move to its myPlan unlimited data bundles, which offer paid add-ons including Apple services; a US$10-per-month bundle for Disney+, Hulu and ESPN+; or a package that includes access to Netflix and Max.
In its third-quarter earnings report, Verizon reported better-than-expected results, attributed in part to the price increases and growth in high-margin consumer businesses. The company is scheduled to report fourth-quarter and full-year results Jan 23. BLOOMBERG
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