Verizon Sees 4% Annual Sales Growth Thanks to 5G. That’s a Lot for the Wireless Giant.
A contract crew for Verizon works on a cell tower in Orem, Utah.
George Frey/AFP via Getty Images
Verizon Communications management extolled the coming value of their recently acquired C-Band spectrum licenses at an investor day on Wednesday evening, and unveiled new near- and long-term financial targets. In short, management sees a growing revenue tailwind from its 5G investments in the coming years, with the full benefits kicking in by 2024.
The most notable projection on Wednesday dealt with revenue growth. Verizon Communications’s target in recent years has been “GDP+” growth, meaning it would increase its sales slightly faster than U.S. economic growth. In practice, Verizon’s annual sales have hardly budged since 2014.
On Wednesday, management said that it expects to grow its service revenues by at least 2% in 2021, at least 3% in 2022 and 2023, and at least 4% in 2024 and beyond. That is when it sees 5G adoption and new business lines substantially contributing to revenue growth.
Verizon stock (ticker: VZ) was about flat in after-hours trading on Wednesday, at around $57.
Verizon was the biggest spender in the recently completed C-Band wireless spectrum auction, with a bill totalling some $53 billion after clearing costs. Those licenses count as mid-band spectrum, which offers an attractive trade-off between capacity and range for 5G networks.
Prior to the auction, Verizon’s portfolio was much more concentrated in low-band spectrum, which can travel a long distance from its antenna but doesn’t carry data as efficiently, and so-called millimeter-wave, or mmWave, spectrum. That is the highest-frequency spectrum used in 5G networks. It enables the fastest download speeds and lowest latency, but its range is limited to hundreds of yards.
With its C-Band splurge, Verizon immediately more than doubled its mid-band portfolio, although not all of that is available to deploy right away. The first tranche of spectrum from the auction will be cleared by the end of this year, while the second and larger tranche will only be ready for use by Verizon in late 2023.
Still, Verizon said Wednesday that it expects to have 100 million people covered by C-Band spectrum within 12 months. It can start upgrading its antennas to be ready for the new spectrum before it becomes fully available, and expects to have up to 8,000 cell sites ready this year.
By 2024, Verizon said it expects to have more than 250 million people covered by its new C-Band spectrum. Verizon said it will spend an additional $10 billion in capital expenditures on top of its existing budget (projected at about $18 billion in 2021) over the next three years to deploy that spectrum.
MmWave will continue to be a growing part of its 5G network too. Verizon CTO Kyle Malady said it will roughly double the number of mmWave-equipped small cells this year, to more than 30,000. Those will be concentrated in urban areas and denser places like airports, college campuses, and stadiums.
By 2023, as 5G coverage improves and more 5G-enabled smartphones become available, the majority of Verizon’s customers will be on the next-generation network, Consumer Group CEO Ronan Dunne said on Wednesday, up from 9% at the end of 2020.
As things currently stand, that means subscribers will need to be on one of Verizon’s higher-priced Unlimited plans. The company has been successful in upgrading customers to those tiers in recent years, with 43% of its subscribers on an entry-level Unlimited plan and 21% on a premium Unlimited plan at the end of 2020. Continuing to nudge customers up the ladder should mean higher revenue per subscriber. In 2023, Verizon expects about 40% of its subscriber base to be on an entry-level Unlimited plan and 50% on a premium Unlimited plan.
Verizon management also pointed to other 5G monetization opportunities on Wednesday. That includes fixed-wireless access home broadband—essentially home internet delivered over a wireless network—and Verizon unveiled a new 5G-enabled internet gateway and smart display on Wednesday. By the end of this year, management expects that 15 million homes will have access to a Verizon FWA service, on either 4G LTE or 5G. It expects that to rise to 30 million by the end of 2023, when the second C-Band tranche clears, and 50 million by 2025. That’s a new business for Verizon, and an opportunity for revenue growth.
Finally, Verizon Business CEO Tami Erwin pointed to the longer-term opportunity for mobile-edge computing and private 5G networks. Those are both applications focused at businesses and large enterprises. MEC is essentially miniature data centers spread across the network, with cloud computing and processing taking place closer to users. Verizon has a partnership with Amazon.com’s (AMZN) AWS for a MEC product.
Private 5G networks could appeal to a factory or warehouse owner who wants to have a dedicated wireless network for the smart machines and robots buzzing around its facilities. Verizon is working with Microsoft (MSFT) on a product there. Management expects those business 5G applications to be a $30 billion a year market by 2025.
All that spectrum license spending comes with new debt, however. Verizon’s ratio of net unsecured debt to Ebitda—or earnings before interest, taxes, depreciation, and amortization—will rise to about 2.8 times this year, from 2.0 times at the end of 2020.
Verizon CFO Matt Ellis said on Wednesday that the company aims to return to 2.0 times leverage within four to five years. Share buybacks are likely off the table until that goal is met. Verizon stock currently sports a dividend yield of about 4.4% annually.
T-Mobile US (TMUS) hosts an investor day on Thursday at 2 p.m. ET, and AT&T (T) management speaks to investors on Friday at 10 a.m. ET.
