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 askAugust 2018 Verizon's $20B 5G build is starting to add customers in 2018. Gigabit LTE & Massive MIMO became real in 2017 and enow expanding worldwide. Almost all the other "5G" is mid-band, 70%-90% slower + hype. Europe is mostly pr. The term 5G has been bastardized, unfortunately.

Being a reporter is a great job for a geek. I'm not an engineer but I've learned from some of the best, including the primary inventors of DSL, cable modems, MIMO, Massive MIMO, and now 5G mmWave. Since 1999, I've done my best to get closer to the truth about broadband.

Send questions and news to Dave Burstein, Editor. I always want to hear from you, especially if you catch a mistake.

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 5G Why Verizon thinks differently and what to do about it is a new report I wrote for STL Partners and their clients.

STL Partners, a British consulting outfit I respect, commissioned me to ask why. That report is now out. If you're a client, download it here. If not, and corporate priced research is interesting to you, ask me to introduce you to one of the principals.

It was fascinating work because the answers aren't obvious. Lowell McAdam's company is spending $20B to cover 30M+ homes in the first stage. The progress in low & mid-band, both "4G" and "5G," has been remarkable. In most territories, millimeter wave will not be necessary to meet expected demand.

McAdam sees a little further. mmWave has 3-4X the capacity of low and mid-band. He sees an enormous marketing advantage: unlimited services, even less congestion, reputation as the best network. Verizon testing found mmWave rate/reach was twice what had been estimated. All prior cost estimates need revision.

My take: even if mmWave doesn't fit in your current budget, telcos should expand trials and training to be ready as things change. The new cost estimates may be low enough to change your mind.