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Verizon Investors Say Wake Us Up When 5G's Here

Verizon Investors Say Wake Us Up When 5G's Here

(Bloomberg Opinion) -- A host of industries are counting on the launch of 5G wireless networks for futuristic applications that run the gamut from driverless cars to remote surgical procedures. For the U.S., the rollout of 5G is considered an important international race that must be won.

But lest we forget, no one is more dependent on getting 5G right than the wireless carriers themselves – in particular, Verizon Communications Inc. 

Verizon reported mixed fourth-quarter results on Tuesday, showing more signs that the wireless industry as we know it is maturing and that growth will be harder to come by this year. While the company’s earnings beat analysts’ expectations as it embarks on a massive cost-cutting spree, its $34.3 billion of revenue fell a tad short, and the outlook for 2019 sales growth was in the mere low-single digits. Even though the wireless price wars have largely come to an end, the anticipated recovery in Verizon’s monthly average revenue per user – a key margin metric – has also disappointed. Shares of Verizon slid about 3 percent Tuesday morning to their lowest level since the Christmas Eve stock-market plunge.

Verizon Investors Say Wake Us Up When 5G's Here

Verizon’s closest rival, AT&T Inc., has been refashioning itself into a media conglomerate with its takeover last year of Time Warner and coming launch of a new streaming service anchored by HBO, the prized jewel in the deal. Meanwhile, Verizon has been doing the opposite by shifting away from media. It’s laying off employees of its Oath business – the amalgamation of AOL and Yahoo – and dropping the Oath name to focus on the Verizon brand and, most important, the Verizon wireless network. It’s a strategy that’s been working for Verizon, as I’ve written before. At the same time, it means the company is staking its future on this next-generation wireless network, so there’s not much to get excited about until that begins making an impact on Verizon’s financials and drawing more subscribers.

Verizon Investors Say Wake Us Up When 5G's Here
In October, Verizon got a head start in introducing residential broadband and TV services using 5G technology in four cities that are serving as a testing ground for the company. Its rivals aren’t far behind, though, and it won’t be until 2020 that wireless customers get a taste for the new, faster service. 

Until then, Verizon’s stock will be hampered by the simple fact that it may have already reached its peak valuation for this transition period. It’s still better situated than AT&T, which is grappling with a boatload of post-deal debt and the albatross that is its DirecTV video business. (T-Mobile US Inc. and Sprint Corp., for their part, are in limbo awaiting a regulatory decision on their hopeful merger.)

But for Verizon shares to go any higher, “it will need to become more than just the alternative to a riskier AT&T,” Craig Moffett, an analyst for MoffettNathanson LLC, wrote in a note Tuesday. That’s because the business is barely growing and the stock is “not all that cheap.” To just not be AT&T isn’t enough of an investment case from here on out.

That said, Verizon is a bit like Comcast Corp., which has been slow to move into streaming but is capitalizing on the rise of Netflix by adding millions of high-speed internet subscribers. In a similar sense, Verizon is looking to serve as the pipes that make new 5G-enabled products and services possible. That’s probably a safer bet in the long run, even if it makes for a dull 2019.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

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