Can 5G Spur Biz Where Tax Reform Failed?

Enterprises have more cash but still move cautiously on next-gen services, says Verizon CFO, but 5G holds great promises for businesses.

November 14, 2018

3 Min Read
Can 5G Spur Biz Where Tax Reform Failed?

Verizon's Matthew Ellis confirmed today that US tax reform hasn't sparked the predicted growth in investment by the businesses that benefited from those cuts -- at least not on next-gen business services.

Speaking on the Morgan Stanley European Technology, Media & Telecom Broker Conference Call, Ellis, who is executive vice president and chief financial officer for Verizon Communications Inc. (NYSE: VZ), said enterprise customers are upgrading their IT systems and looking at newer products -- like things such as software-defined WANs -- as part of that transition. But the overall enterprise revenues continue to contract because that spending doesn't outweigh the falling prices and uptake on legacy products and services, he noted.

Ellis said Verizon "is getting good traction with some of the newer products" but isn't seeing any surge in spending tied to tax reform.

"Most businesses focus on spending their money as efficiently as possible," Ellis said, according to this Seeking Alpha transcript. "And just saying, 'I got tax reform, therefore, I can immediately start spending,' the vast majority of businesses aren't -- as you'd expect, doing it that way. Are they looking at, okay, maybe I have a little more money to spend and I can spend on some of those things over time, potentially. But it doesn't show up in like this big surge in spend than some have theorized that it would."

Among those doing that theorizing, early on in the Trump era, was AT&T Inc. (NYSE: T) CEO Randall Stephenson, who helped beat the drum for tax reform in advance of its passage by saying tax reform and a reduction in regulation would "change the equation" on capital spending by US companies.

Instead, his company, Verizon and, as of last week, CenturyLink Inc. (NYSE: CTL), are all seeing business revenues continue to decline. CenturyLink saw its business revenues decline just over 3%, with small to midsized business revenues declining more than 4%, a reality its executives attributed in part to a willingness to shed less profitable customers.

Interestingly, both AT&T and Verizon are also now touting the business service benefits of their 5G rollouts. Ellis told the Morgan Stanley audience that the "B2B side is going to be far greater as you go into 5G than it is in previous wireless generations."

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"Because of the massive throughput, because of the low latency and a whole host of the other improvements with 5G, we think, over time, the B2B adoption of applications and technologies using 5G in ways that fundamentally changes how their business is run is a significant upside as well," he commented. "So you've got three major revenue streams versus really only having one of those in 4G and prior technologies. And as we think about the overall 5G model, it's based off increasing the revenue streams available to us."

The three major revenue streams he references are residential broadband, mobility and business services.

Earlier this fall at the MEF18 conference in Los Angeles, AT&T's Chief Product Officer Roman Pacewicz made the same point in a keynote fireside chat, calling 5G "an absolute gamechanger for business services."

The network density, low latency and speeds associated with 5G will make it critical for many industry verticals, such as manufacturing, especially when it is combined with edge computing for processing the massive amount of data that devices will produce, Pacewicz said.

— Carol Wilson, Editor-at-Large, Light Reading

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