Verizon 5G network is like cheese – full of holes, says analystVerizon 5G network is like cheese – full of holes, says analyst

Craig Moffett puts 5G 'availability' on Verizon's network at just 8%, way behind T-Mobile's. Fixing that will cost 'lots of money,' he says.

Iain Morris, International Editor

July 22, 2024

5 Min Read
Verizon retail store in Bryant Park NYC
(Source: Verizon)

Hans Vestberg, the Swedish CEO of Verizon, was his usual chirpy self on the regular update with analysts about second-quarter results, proclaiming his company the "best" overall wireless network in the US, according to new RootMetrics research. And any suppliers scanning figures and tuning into the call may have felt their own moods lift. Verizon pumped just $8.7 billion into capital expenditure in the final six months of 2023. The latest figures imply spending in the same period this year will be anywhere between $200 million and $700 million higher. 

Has a corner been turned? After investing $18.8 billion in 2023, Verizon has clung to guidance that capital expenditure this year will amount to between $17 billion and $17.5 billion. The US cuts, which Ericsson and Nokia have blamed on earlier stockpiling, explain partly why the Nordic vendors have struggled to shift 5G products and slashed thousands of jobs. But if the first half was much worse at Verizon – with expenditure down $2 billion, to $8.1 billion – the second half looks set to be somewhat better.

On the wireless side, this will not help Nokia, which lost out to Samsung in Verizon's 5G network several years ago. But it could benefit both the South Korean vendor and Ericsson. As part of what Vestberg called a "RAN [radio access network] refresh," Verizon is deploying equipment to support the C-band spectrum it previously bought for an outrageous $45 billion in government auctions. Nearly half its network traffic now runs over these C-band airwaves, chortled Vestberg today, up from just 36% a year ago. 

But according to one prominent analyst, the 5G coverage provided by this C-band spectrum remains bad. Shockingly bad, in fact. Craig Moffett, of MoffettNathanson Research, said he was stunned six months ago to see that 5G availability at Verizon was in the single digits. In a research paper issued today, he estimated it at just 8%. The reason? "Put simply, C-band isn't very good spectrum," he said. The 5G network Verizon is building for this spectrum has "more holes" in it, he said, than you'd find in certain types of cheese.

FOMO spenders

Anyone with a rudimentary understanding of physics in this area will know all about spectrum trade-offs. At the sub-1GHz level, signals are long-distance athletes, slow runners that at least have the stamina to penetrate walls and other obstructions. At the opposite, millimeter-wave end of the frequency range – around 26GHz – they are ultrafast sprinters who collapse after a few meters and lack the power to punch inside buildings. C-band, around 3.5GHz, is often hailed as the 5G all-rounder, combining decent coverage with sufficient capacity. Moffett, clearly, is unconvinced, noting that AT&T, another C-band dependent, is similarly crippled. 

This leaves both operators far behind T-Mobile, which, according to his estimates, is on 5G availability (measured as a percentage of the time a user is connected to the network) of 61%. The amount AT&T and Verizon, but especially Verizon, spent on C-band licenses was "mind boggling," said the analyst, and a clear case of FOMO (fear of missing out). T-Mobile, by contrast, seems to rely on 2.5GHz spectrum it acquired with its takeover of Sprint, as well sub-1GHz airwaves previously bought at auction. The MoffettNathanson verdict? "Fixing the 5G coverage problem will require money. Lots of money."

This, again, sounds like wonderful news for Ericsson, Samsung and possibly other kit vendors. But this would require Vestberg to acknowledge Verizon has a problem and sound willing to invest much more than an additional $200 million to $700 million for the current half, compared with the year-earlier period. And his remarks indicate he has no intention of doing so.

"When it comes to our capital allocation priorities they haven't changed," he said, answering a question today. "Of course, if we see opportunities to gain more revenue and grow the business, then we will always look into the business side. Second the dividend is very important. We've now been growing our dividend for 17 consecutive years ... and then we are paying down debt."

A glance through the latest results shows why there is a reluctance to increase spending. At most levels, operational metrics are as flat as a Kansas plain devoid of 5G masts, with sales up just 0.7% year-over-year, to about $32.8 billion, and net income down 1.3%, to $4.7 billion. Verizon, moreover, holds about $126 billion in long-term debt. Yes, that is $11.7 billion less than it had on the books at the end of 2023. But it is still a neck-craning amount.

Hubris?

Besides operating in these conditions, Vestberg also seems to think Verizon is better equipped than its competitors to meet the AI-driven demands that might come with the new iPhones. "We believe we have such a great network and great offerings and can actually manage that and will continue to do so," he said, responding to a question Moffett asked on the call.

"Where I am most excited is that we have built the Verizon intelligent edge network, which will be the backbone for the GenAI economy, as you are going to have a lot more compute storage at the edge, and that is how we built the network from 2018," he added. "Our network is set up for that."

If he is right, then suppliers expecting AI to revitalize sales may be sorely disappointed. If he's wrong, then a new upgrade cycle driven by Apple could mean higher costs and lower margins as Verizon is forced to invest. "And that, in turn, would mean lower free cash flow ... and less debt retirement" along with none of the stock buybacks increasingly built into consensus analyst expectations, noted Moffett in his research. Neither sounds ideal.

About the Author

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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