Verizon Vague on 700 MHz, Vonage Case after Strong Q1
Verizon was tight-lipped on its 700 MHz auction plans as announcing Q1 financial results, including a revenue uptick but slightly lower profits due to increased network spending. CEO Ivan Seidenberg said the company reserves the right to pursue intellectual property litigation for its PSTN technology, as it has in the Vonage case, but will wait until that case plays out before considering other action. The company voiced confidence in quickly resolving any upcoming union contract negotiations.
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Profit fell to $1.5 billion, from $1.63 billion a year ago, partly due to a one-time loss of $131 million related to Venezuelan nationalization of its phone company, partly owned by Verizon. The company cited strong revenue growth -- up 6.4% from Q1 2006 to $22.58 billion. Verizon’s wireless unit added 1.7 million net new subscribers, with wireless revenue up 17% to $10.3 billion. The company’s stock rose 54 cents after the announcement.
Verizon expects to “participate” in the 700 MHz auction, Seidenberg said in response to post-presentation questions. But there’s “no news” with respect to the carrier’s specific plans for the spectrum, he said, adding that he expects the auction to occur this year. Such wariness is logical, Stifel Nicolaus analyst Rebecca Arbogast said: “The last thing Verizon will do at this point is be candid about their spectrum plans.” If anything, that strong wireless Q1 likely will drive Verizon’s interest, because the profit motive is there now, Arbogast added: “I expect them to be a strong player.”
Verizon is evaluating the implications posed by competing network technologies in the 700 MHz space, said Susan Eustis of Wintergreen Research. The carrier “may or may not” use Alcatel-Lucent’s 700 MHz CDMA technology, and stands “vulnerable to WiMAX deployments in Philadelphia and elsewhere,” she said -- especially from Sprint’s deployment, which she calls well positioned “support the needs of public safety organizations by providing community coverage.” Even so, Eustis said, the likeliest outcome is a patchwork of network technologies, only enforcing the carrier’s desire to be well positioned spectrum-wise.
Verizon “liked [its] chances” in the recent Vonage patent case (CD March 9 p1), creating a strong motivation to enforce its VoIP-PSTN patents, Seidenberg said. The CEO said Verizon didn’t rule out taking on cable companies, though the company has no new legal action on its agenda and won’t -- at least until the Vonage appeals process plays out. “All VoIP issues are different in different segments of the industry,” he said, suggesting not all PSTN-access technologies are the same.
Verizon believes it will resolve any disputes over union contracts in the coming year. Seidenberg urged thinking of management-union negotiations as “a continuum,” rather than one set conflict or event -- “a big chunk” of contracts come up in 2008, he said, giving parties time to work out details.
Analysts gave Verizon high marks on financial performance. UBS maintained the carrier’s “Neutral” rating but said wireless results -- including steady rises in ARPU and subscribers -- show the company’s true growth potential. Analyst Jeff Kagan said Verizon is doing a strong job “transforming the company from a local phone company to a full service provider.