Verizon 5G, IoT Businesses Blossom As Oath Media Business, Enterprise Services Falter

The race to 5G is well underway as Verizon promises to not only be first in launching the world's initial 5G commercial product, but also first to deliver true 5G mobility to consumers because it's been working out the kinks prior to the arrival of global standards-based equipment, according to Matt Ellis, Verizon's executive vice president and CFO.

"We are excited to be at the dawn of the 5G era," Ellis told investors during the carrier's Q3 2018 earnings call. "5G technology will provide meaningful value above the current network experience … We are gaining valuable insights ahead of the industry that will drive refinements to the customer experience. As soon as devices and equipment are available, the deployment of our 5G network on the global standard will begin for mobility and residential broadband."

In the meantime, the Basking Ridge, N.J.-based carrier continued to tout its robust wireless network and 4G connectivity. Wireless operating revenue rose 6.5 percent to $22.97 billion during the third quarter, compared to $21.58 billion in third-quarter 2017. Verizon attributed its positive wireless performance to customers moving to higher-priced plans and more connections per customer.

"Our 4G LTE network will continue to be a foundation of our services for many years to come. We continue to make enhancements to our 4G through fiber and small cell densification," Ellis said.

[Related: 5G Opportunity No Longer Just 'Hype And Hyperbole' For Solution Providers]

The carrier reported a retail postpaid phone churn at 0.80 percent for the quarter, with a net increase in retail connections of about 1.4 percent. Verizon had a combined 116,871 retail postpaid and prepaid connections during the quarter, which was up from 115,274 during Q3 2017. Total IoT revenues increased by 12 percent year-over-year, according to Verizon.

Verizon also addressed its early-retirement buyout offer to thousands of its employees that it revealed in September during the call. The deal, which was extended to all management employees, could help the carrier trim its costs by about $10 billion by 2021. Ellis said that employees are still in the process of choosing whether or not to accept the offer, and that it's "too soon to tell' what kind of financial impact the deal will have in 2019.

"Hans [Vestburg, Verizon CEO] and I are focusing on not just making sure we are successful today, but we can be successful into the future as well and [that] we can take advantage of any opportunities that come along in the marketplace," he added.

Total operating revenue for Verizon's Wireline Division, which includes its Enterprise Solutions, Partner Solutions, Business Markets segment and consumer markets, slipped 3.8 percent to $7.37 billion during third-quarter 2018 from $7.66 billion in the year-ago period.

Verizon Enterprise Solutions declined about 4 percent to $2.17 billion in revenue, compared to $2.26 billion in the third quarter of 2017. Partner Solutions revenue dropped 6 percent to $1.17 billion during Q3 2018, down from $1.24 billion in the year-ago period. Revenue for Verizon Business markets took the largest hit, falling 7 percent down to $840 million from $903 million one year ago.

Ellis attributed Verizon's struggling wireline and business services segments to pressure on legacy products, which are still offsetting the growth of fiber-based solutions. "We expect price compressions on legacy products and increasing content costs to continue to put pressure on the wireline margins," he said.

Revenues for Oath, a business unit that includes Verizon's AOL and Yahoo assets, dipped to about $1.9 billion, down 6.9 percent year-over-year. Verizon said the decline was due to search and desktop usage declines, which is more than offsetting growth in mobile usage and video products.

In September, Verizon Oath CEO Tim Armstrong revealed plans to leave the company. Oath's former president and COO, Guru Gowrappan, assumed all management responsibilities as CEO of the digital media and advertising subsidiary on Oct. 1. Ellis said that the Oath leadership team is focused on returning to revenue growth as it finishes the integration of AOL and Yahoo into the Verizon platform by the end of the year.

Overall, Verizon reported stronger than expected financial results for the third quarter, which ended Sept. 30, 2018. The carrier had operating revenue of $32.61 billion in the quarter, up about 2.8 percent from $31.72 billion in the third quarter of 2017. That topped analyst expectations of $32.5 billion in revenue, according to Thomson Reuters estimates.

Verizon's net income for the quarter was $5.06 billion, up about 35.5 percent from $3.74 billion during the same period last year. The carrier reported diluted earnings per share of $1.19, compared to diluted earnings per share of 89 cents during third-quarter 2017.