Craig Moffett shoots down deal rumors. There's lots of speculation about Verizon buying Charter or Comcast, giving them a local network to support their 5G build. Buying Comcast would cost $240B+, including $58B in debt. Charter would go for a modest $164B+, including $59B debt. They can build their own fiber networks for $5-10B, which looks smarter.

Moffett adds to the doubts by pointing out any deal would hurt Verzon's leverage ratio or dividend coverage. Both are already challenging. They could probably find the money somehow, I believe, but their balance sheet would wind up very ugly.

CFO Ellis in the latest quarterly report writes

  • That it is on track for a return by the 2018-2019 timeframe to the company’s credit-rating profile prior to the acquisition of Vodafone’s indirect 45 percent interest in Verizon Wireless in early 2014.

That would be all but impossible with a large acquisition.

Every part of the company is struggling and much cash flow is going to dividends. They've already cut capex ~20% in recent years, as a percentage of sales. It's hard to see where VZ would find the net income to pay down debt, even if they continue to squeeze down pension contributions.

Craig wrote it well and allowed me to reprint.  

VERIZON: A SOBRIETY TEST - APRIL 24, 2017

A few years ago, as Charter Communications was just beginning its long pursuit of Time Warner Cable, their parent company Liberty Media playfully played a clip from the Rolling Stones at their annual investor day.  The crowd laughed as a young Mick Jagger crooned that “Time, time, time is on my side.”

Now, Verizon is the pursuer, and to hear the company talk, it sounds for all the world that they have their eye on none other than Charter, or perhaps even on Comcast. 

Cue the Rolling Stones one more time.  “You can’t always get what you want.” 

When Verizon’s interest in Charter was first reported in late January, we illustrated the financing hurdles that would make buying Charter so difficult.  Verizon was then caught in a vise of high leverage and an even higher dividend payout ratio.  The more cash rich the offer, the more damage it would do to Verizon’s leverage ratio.  The more equity rich, the more damage it would do to Verizon’s dividend coverage.  There was no mathematical solution at the time for a mix of cash and stock that would keep Verizon’s leverage below 4x EBITDA and its dividend payout ratio below 80% Well, things have only gotten worse since then.  ... an adjusted leverage of about 3.4x – nearly a turn higher than their as-reported leverage.

dave ask

Newsfeed

CFO John Stephens says AT&T is going to cut capex soon.

Bharti in India has lost 45M customers who did not want to pay the minimum US#2/month. It's shutting down 3G to free some spectrum for 4G. It is cutting capex, dangerous when the 12 gigabytes/month of use continues to rise.

Huawei in 6 days sold 300,000 5G Mate 20s. Delivery begins on 8/16. 

China has over 50,000 upgraded base stations and may have more than 200,000 by yearend 2019. The growth is astonishing and about to accelerate. China will have more 5G than North America and Europe combined for several years.

5G phone prices are down to $580 in China from Oppo. Headed under $300 in 2020 and driving demand.

No one believed me when I wrote in May, 90% of Huawei U.S. purchases can be rapidly replaced and that Huawei would survive and thrive. Financial results are in, with 23% growth and increased phone sales. It is spending $17B on research in 2019, up > 10%. 

5G phones spotted from Sharp and Sony

NTT DOCOMO will begin "pre-commercial service Sept 20 with over 100 live bases. Officially, the commercial start is 2020.

 More newsfeed

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Welcome  1,800,000 Koreans bought 5G in the first four months. The demand is there, and most of the technology works. Meanwhile, the hype is unreal. Time for reporting closer to the truth.

The estimates you hear about 5G costs are wildly exaggerated. Verizon is building the most advanced wireless network while reducing capex. Deutsche Telekom and Orange/France Telecom also confirm they won't raise capex.

Massive MIMO in either 4G or "5G" can increase capacity 3X to 7X, including putting 2.3 GHz to 4.2 GHz to use. Carrier Aggregation, 256 QAM, and other tools double and triple that. Verizon sees cost/bit dropping 40% per year.

Cisco & others see traffic growth slowing to 30%/year or less.  I infer overcapacity almost everywhere.  

Believe it or not, 80+% of 5G (mid-band) for several years will be slower than good 4G, which is more developed.