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Verizon Has No Plans to Spend Tax Cut Bonanza on Network Upgrades

Phillip Dampier January 23, 2018 Verizon, Wireless Broadband 4 Comments

Verizon will spend most of the benefits gained from the Trump Administration’s tax cuts on writing off investments that will reduce the company’s tax exposure and boosting its dividend to shareholders.

Verizon’s chief technology officer Hans Vestberg told shareholders at an investment conference the company had no plans to spend the $3.5-$4 billion more in operating cash flow that will result from tax cuts on network upgrades, while it will continue to cut as much as $10 billion in costs out of its business over the next four years.

Verizon has attempted to converge its traditional wireline business with its wireless unit since buying out its partner Vodafone. As the two networks gradually merge, Verizon is continuing job cuts and expense reductions, even as the company will enjoy a $16.8 billion reduction in its deferred tax liabilities because of the new permanently lowered 21% corporate tax rate.

Vestberg argued Verizon was likely to waste money if it spent its anticipated windfall on accelerated network upgrades.

“You probably don’t want to have big spikes in the capital allocation because then in the end it drives inefficiencies. We want to be consistent,” Vestberg said. “From an execution point of view you want to be consistent. It’s not helpful to go up and down in capital allocation because it ramps up and down resources—money wasted … But we are always debating. And we should debate in a leadership team the size of Verizon.”

Verizon currently pays out more than three-quarters of its annual income to shareholders in the form of quarterly dividend payments. This morning, Verizon announced it would award 50 shares of restricted Verizon stock to virtually every employee except those in top management. On Tuesday, Verizon stock traded at around $53 a share, making the stock bonus potentially worth around $2,650 for each worker. But employees may not be permitted to sell their shares immediately. In earlier compensation packages that included restricted shares, the stock could not be sold for at least two years, and was subject to forfeit if an employee left the company during that window.

Verizon’s operating plan for 2018 includes a spending budget of $17 billion, an amount that has not changed as a result of the new tax law. Verizon is expected to allocate a significant amount of its budget towards its wireless services, particularly 5G development.

Currently there are 4 comments on this Article:

  1. EJ says:

    I don’t see this happening to be honest. This is one of the few places that competition in most of the United States is a real thing. To be honest that CFO is probably going to make Verizon lose its number one status sooner then later. They are going to have to change course in a year or two. If you look at Verizon they have been pulling back on the reins one could argue a little to much. Just because they are/were at the top don’t mean they have the ability to stay there. No investment on new spectrum, less then lack luster investment in infrastructure at one could argue a very critical juncture in wireless, late to the game when it came to unlimited and being one of the highest prices when it comes to unlimited. This and more is a recipe for slipping to second as the nations best/largest wireless. The only thing that honestly keeps them at top is the Midwest. Other companies beyond US Cellular have basically ignored the Midwest when it comes to basic coverage so Verizon has the lions share of customers in this part of the country. They will find it generally costs more to play catch up, but it also tends to cost more to be first. I just don’t think this version of Verizon has the ability to thread the needle of when to innovate and come up still on top. Time will tell I guess.

    • kaniki says:

      EJ, I mostly agree.. But there is one point that I would not agree with.. “Other companies beyond US Cellular have basically ignored the Midwest”

      Actually, T-Mobile changed that a couple years ago.. They have dramatically increased their coverage out there.. Take a look at their new coverage map.. If they continue their expansion, like they did last year, then they will probably have matched Verizon’s coverage over the whole country.. One big difference.. T-Mobile will be “all” their own towers.. Where Verizon’s coverage relies a LOT on partner towers.. I would guess that their “partner” towers make up about as much coverage as about the size of California.. Maybe a little more..

      What makes it worse is, they are either ignoring this fact, or just do not care.. Heck, even on their advertised comparison, they are still advertising how much better their coverage is, vs T-Mobiles, from 2016..

      Considering back in 2016, they only had about 25% coverage in most western states, at best.. Now, I do not think that there is a state with less then 50% coverage in the western half of the country.. These are not numbers you can just ignore.. To make it even worse, T-Mobile and AT&T can work off of each others networks.. Yea, they may only have talk and text on each others, but, that will fill in the gaps very nicely, on each companies ends.. After all, a lot of the places where T-Mobile has installed service, is where AT&T doesn’t, so it makes each one of their networks more reliable and better in coverage..

      This fact alone, along with the lower priced plans (like their Metro PCS brand is offering 4 lines of unlimited talk text and 4G data for $100 total) vs Verizon’s cheapest 4 line unlimited plan, which is almost double that.. and the fact that T-Mobile is still going expansion crazy.. It will not take long to be Verizon’s downfall..

      Plus, do not forget how they kicked tens of thousand of customers to the curb because they lived in areas that had “partner towers” too.. Well, you definitely had the “probably going to make Verizon lose its number one status sooner then later” right..

  2. BobInIllinois says:

    Agree w/EJ that Verizon seems to have strong market share in Midwest. T-Mobile seems to be catching up, especially by buying iWireless of Iowa. iWireless in Iowa, western Illinois, eastern Nebraska. Seeing more T-Mobile retail outlets in last 6 months as I travel Illinois.

    I really doubt that Verizon will NOT spend some of the tax savings on expanding network Capex. Board of Directors may have something to say. A little early to conclude that VZ will not do this.

  3. kaniki says:

    “Verizon currently pays out more than three-quarters of its annual income to shareholders”

    This just shows where their priorities lie..

    ” the stock could not be sold for at least two years, and was subject to forfeit if an employee left the company during that window”

    Taking this into account, they never specified “voluntarily”.. Basically, all they have to do is find some way of firing most of them, within the next 2 years, close down an office (which usually results in downsizing, or sending work out of the country), or just get them to quite, and they are off the hook for giving them those stock.. Verizon is well known for all of the above..

    “You probably don’t want to have big spikes in the capital allocation because then in the end it drives inefficiencies. We want to be consistent,”

    And the end result.. Verizon’s wired system, that is falling apart, will just continue to degrade, they will loose more customers, and there will go more income.. But I guess, as long as they are “consistent”, then it is fine.. Even if that consistency is loosing people, and a worse network.. But I am sure that everyone on that wired network (as in POTS), that has bad service because if it, will not agree with them..

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