Verizon Sees Profit Margins Higher After Mobile Acquisition

Verizon Communications Inc. (VZ) forecast higher profit margins this year following the $130 billion acquisition of full control of its mobile-phone unit, a deal intended to prepare the company for a new wave of demand for wireless connections.

Revenue will climb 4 percent, compared with 4.1 percent growth last year, New York-based Verizon said today in a statement. Profit margins will expand in both the wireless and landline businesses, the company said. Verizon closed its transaction last week, buying out Vodafone Group Plc’s minority stake in the mobile-phone unit.

The deal is Chief Executive Officer Lowell McAdam’s bet that the U.S. wireless market still has room for expansion even as growth slows in smartphone sales. He’s counting on the increasing appeal of video delivered over the Internet and on wireless communications between machines, such as medical or vehicle-tracking devices.

“You’ll see the product portfolio evolve pretty quickly here,” McAdam said today on a conference call with analysts. “The biggest change for us is speed.”

Shares of Verizon fell less than 1 percent to $47.06 at 9:30 a.m. in New York. Through last week, the stock had dropped 12 percent, wiping out $19 billion in market value, since reaching a 13-year high in April in anticipation of the transaction.

A mobile-phone industry price war has damped investors’ initial euphoria. T-Mobile US Inc. (TMUS) has offered to buy out rivals’ customers from their contracts and introduced cheaper international calling plans, and AT&T Inc. and Sprint Corp. have mimicked its moves.

Shareholder Meetings

Following today’s conference call, Verizon executives plan a series of private meetings with big shareholders. Verizon won’t gain much in reduced costs or new products, which means McAdam will have to convince investors and bondholders that there are other ways to increase profits and justify the heavy price tag of the deal.

T-Mobile, the fourth-largest U.S. carrier, has added about 2 million monthly subscribers in the past three quarters, compared with Verizon’s 3.4 million. In January, T-Mobile said its so-called porting ratio with Verizon was greater than 1, meaning it was getting more customers from Verizon than it’s losing.

Even Verizon’s biggest rival, AT&T, has entered the industry price war, with a $40 cut to a family plan aimed directly at Verizon. So far, Verizon has opted to avoid price cuts and instead added features like bigger data allotments and free network storage.

To contact the reporters on this story: Alex Barinka in New York at abarinka2@bloomberg.net; Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Sarah Rabil at srabil@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.