Verizon Communications is reportedly considering selling its enterprise wireline assets to enable it to focus on its core business. The telecoms giant’s scepticism about the value of quad play in the US contrasts with the views of Sprint and T-Mobile US executives, who have indicated that they expect fixed and mobile convergence to drive M&A.
Verizon Communications (NYSE:VZ) is reportedly considering selling its enterprise wireline assets to enable it to focus on its core business.
The potential sale, which could fetch up to US$10bn, would include the former MCI business, which provides landline and internet services to large enterprises, and data centre unit Terremark, Reuters cited people familiar saying.
The US telecoms giant bought MCI for US$8.4bn in 2006 and acquired Terremark for US$1.4bn in 2011.
Verizon has reportedly hired Citigroup to advise it on the potential sale and is still looking at how it could be structured.
Fixed-line player CenturyLink was in talks with Verizon earlier this year to buy some of the assets but could not agree terms, the report stated.
Verizon agreed in February to sell US$10.5bn worth of wireline assets to rural provider Frontier Communications and to offload towers to American Tower for US$5bn in a sale-and-leaseback deal. Rumours have persisted that it would seek to sell more wireline assets, allowing it to reduce a debt pile which totalled US$112.3bn at the end of Q3 2015.
Last week, Verizon outlined its strategy to analysts in a presentation at its New Jersey headquarters, saying it has four key elements: staying some two years ahead of rivals in terms of network performance; investing in platform and application initiatives; cutting costs and streamlining service delivery; and avoiding major M&A.
Following the presentation, certain analysts remained uncertain about whether Verizon will hold onto its wireline network assets.
Barclays said in a report that management had stressed that they are not interested in selling the remaining wireline assets as they consider them key to delivering high-quality wireless services. However, the analysts noted that the carrier could easily separate its wireline and wireless networks if it decides to sell the former. If it chose to do so, they said they would attribute the comments on the importance of wireline to “the owner’s economics associated with the wireline fibre assets”.
Fixed/wireless convergence may not be a growth driver
Bernstein Research analysts noted that management was vague on the source of backhaul for its increasingly dense wireless network in the face of wireline divestitures, adding that they think some sort of deal with a cable company is likely.
However, they believe a sale of wireline assets in the northeast is unlikely given pension and other postemployment benefit (OPEB) liabilities. They also consider a sale of enterprise assets unlikely in light of the recent operational integration across wireline.
In their view, Verizon is most likely to sell non-core assets such as real estate and data centres.
They also noted that management were sceptical about the value of quad-play in the US market, saying that launching such services carries “a risk of a bill-shock-driven negative customer reaction”.
“We agree with this view and think – as with wireless competition – it is a mistake to extrapolate from European markets to the US,” they added.
Conversely, Sprint CEO Marcelo Claure and T-Mobile US CFO Braxton Carter both indicated in late September that they expect fixed and mobile convergence to drive M&A deals.
Claure was cited saying he thinks Sprint would become “a stronger and more formidable competitor” if it merged with a cableco, while Carter told TelecomFinance that cablecos are likely to target mobile deals to create a more ubiquitous footprint.
Bernstein speculated that the cablecos which Verizon CFO Francis Shammo (pictured) recently said may be preparing to exercise an option under a 2012 deal with the carrier to launch MVNO-style services – namely Comcast, Time Warner Cable, Bright House Networks and Cox Communications – could be doing so “to test consumer demand for mobile services ahead of either a broader agreement with Verizon including a new MVNO deal/backhaul/wifi offload or taking an ownership stake in T-Mobile/Sprint”.
Verizon declined to comment.
The carrier reported operating revenues of US$33bn for Q3 2015, US$23bn of which came from the wireless segment. Wireline operating revenues were down 2.3% year-on-year, while global enterprise operating revenues were down 4.9%. Shammo attributed the global enterprise decline to “secular and economic challenges”.
