After its $28 billion deal to buy Alltel, Verizon (VZ) is done shopping for a while, at least in terms of “horizontal” deals to add more breadth to the company’s coverage areas, COO Denny Strigl said today at Deutsche Bank’s annual media and telecom conference.
Specifically, Strigl was asked if Verizon had any plans to expand internationally into emerging markets, where wireless penetration is relatively low and growth rates are high. Strigl said the company has no immediate “plans” or “requirements” to expand horizontally. But he says Verizon may partner with other companies, where appropriate, or make “vertical” deals — like its acquisition of security firm Cybertrust last year.
Strigl also reiterated that the telco hasn’t experienced any broad, significant weakness from the U.S. economy.
12:44 Joining in progress: FiOS has a good growth trajectory: Operating income positive next year, net income positive the year after. Nothing has changed. Good FiOS growth into Q1, continued focus on rolling out FiOS, on track to pass 12 million homes this year, 3 million next, and on target for 18 million. Feel good about wireless business.
12:46 Alltel deal isn’t a “game changer” because don’t think there’s anything that could throw VZW off its game. Ohhh burn! Can’t think of a better strategic fit than Alltel; had eyes on for years. CDMA technology, closedly aligned distribution. Anxious to get through regulatory process and move on.
12:48 Approval process: Plenty of precedent for transaction this size. Do you think you can get it done in six months? Think so. Alltel first time around closed in five months. Certainly a different buyer, but Dobson-AT&T (T) also a good precedent.
12:49 Could see FCC departures. Does that change process as you see it? What happens, happens. Change or no change, think we can get it done by the end of the year.
12:50 How long do you think it actually is before Alltel properties become as profitable as VZW? Cost synergies of $9 billion — we have said we’ll realise over 2 years. I don’t see anything in the way of that. Also think we have some good revenue opportunities: Data ARPU for example. VZW spend about $3 more a month than Alltel customer. VZW churn rate about 40 bps better.
12:51 What’s happening to wireless in weakening US economy? We are not seeing any significant impact on the economy. I’ll underscore the word significant. Of course there are pockets, whether higher bad debt levels in some places in the Midwest, but it’s not anything that stops our overall game plan or causes us to really think twice about it. On the enterprise, to be totally candid, in financial services, we have seen some delay on decisions, closing of locations, but overall impact on VZW has been almost nothing.
12:53 FiOS overbuilding in Texas? No specific plans to build anywhere other than in our franchise footprint. That isn’t to say that that’s a forever strategy, but we have enough to do within our own footprints where we don’t need to seek out those opportunities in the future. In Texas, where we have built out FiOS, penetration well about 40% in some markets, have chosen strategy to do “the next neighbourhood over.” Why not continue to expand one block/neighbourhood over, which is what we’ve done in Texas.
12:55 How much does mobile phone hardware fit into purchase decision? Certainly Apple’s (AAPL) iPhone has caused change in industry, has caused customers to be more data-aware, look for sexier phones. To the degree that it has, the industry has benefited. VZW has sold more high-end phones after iPhone than before. Talking up Verizon Voyager with QWERTY keyboard. Very alert with what Apple does; certainly a trendsetter, but overall I think we benefit from them.
12:56 Competition from cable companies in business market? Sure. We see competition from cable everywhere. Doing best where we offer FiOS. Doing worst where we don’t offer DSL. Shows us that FiOS strategy — rolling out as quickly as possible — is something we need to make sure we do. And we’re right on target.
12:58 Selling more CDMA-GSM just for outgoing? Can get Vodafone (VOD) to sell too? Seeing more internationally that comes from Vodafone. At the initial movement into the enterprise marketplace with Vodafone. Focus on multi-national accounts with VOD has been a bigger focus in the last 6-9 months than in the past. Very good cooperation with multinational accounts.
12:59 Relationship with VOD is as always, strong. On operational team we work very closely. Even moreso on enterprise. That hasn’t changed. Relative to change at the top of Vodafone, we’ve known Arun for years. Back to the Airtouch days. He’s been a very good partner and I’m disappointed to see him go, frankly. We’ve also worked closely with new CEO. He’s a strong leader. We’ll continue to work closely with him. I don’t see any change.
1:00 Talk about LTE upgrade? How fast? Every time we hear question about timing or higher speed, I think it relates to what’s timing on rollout of higher speed technology. We will go to market trials in 2009, toward the end. We will make out product commercially available in 2010. Have had discussions with infrastructure suppliers, so we have a plan. Confident that that plan will come to fruition. How do you ramp up your data quickly as you modelled decline in voice business? (Not sure you modelled correctly!) 40% y/y growth in data, which hasn’t slowed down. As we look into 2009 and we layer open development with LTE, we see some good upside.
1:03 Pricing wars on consumer broadband/video side? On non-FiOS, are you pleased with DirecTV (DTV) strategy? We don’t spend a lot of time getting agitated over pricing wars. If you look at wireless business, it has always been the price leader, and we have always stressed the value. We are not the take-down market leader and we have no intentions to be. Think we have a superior product so we’re careful on how we price the product. If anything, we probably haven’t taken historically as much advantage of DirecTV relationship as we should have. Now have emphasis on business of triple play with renewed strategy. I think DTV feels the same about us. Think we had more adds in Q1 than in the past.
1:06 I don’t lose a minute of sleep over WiMax. At the same time, I think it is important to say that we will focus on the success that WiMax has in the marketplace. I think it’s a future product/service, not something we worry about today. We’ll watch closely and adjust strategy as required but right now, we’re not all that concerned about.
1:07 Now showing T with bigger subsidies, etc. How competitive would you get in wireless? We have been very consistent about how we’ve told you about our cash flows in wireless. Not changing what we’ve told you. Will there be price skirmish here or there from time to time? Of course there will. Most recent was about $99 unlimited plans. As we reported on Q1 call, this has been a very beneficial plan for us — can tell you today that from the high end, we are experiencing quadrupling of gross adds, and reduction of churn rate. Wasn’t at all a price war and think it was a good decision.
1:11 Age-old proven model that the rest of the industry has had is now being adopted by AT&T and Apple. I don’t see anything that changes the game for Apple. They changed their own game; I’m surprised it took this long.
1:14 Any thoughts about expanding into emerging markets? Horizontally, no immediate plans or requirements to expand. If we look at enterprise business, we think the best IP global network, distribution around the world, comfortable with our position today on a horizontal basis. That isn’t to say that we wouldn’t seek opportunities to partner; where we could, we would consider that. Vertically, we continue to look for opportunities like we did a year ago in the security market. But beyond that, not much more that I could add.
1:15 No current plans for wireless-to-broadband dual-mode phones. Individuals use mobile phones. They know they give the number out for you to call them on the mobile phone. Families use home phones. I don’t even know how to answer voicemail on home phone.
1:17 Economics of FiOS in MDUs. (Apartment buildings.) First off: Ability to technically serve MDU? With things like bendable fibre, we really have an economical way to serve MDUs. We’re going to pass it anyway. Ability to go after buildings and small businesses. Will be in New York City later this year. Working with DC, Philly, Pittsburgh, hope to have even further MDU opportunities soon. Cheaper to pass a MDU and get that kind of opportunity than it is a single family dwelling. Dependent on more city franchises.
1:25 We have not abandoned DSL. Not thrilled that we’ve advertised FiOS over DSL. It is what it is!
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