Verizon Capex to Stay Flat Despite Commercial 5G Launch in 2018

Verizon said Tuesday that its capital expenditure for 2018 will stay relatively flat with last year's capex, despite the launch of its first commercial 5G markets in the second half of this year.

Verizon Communications Inc. (NYSE: VZ)'s CFO Matt Ellis said on the operator's fourth-quarter earnings call Tuesday morning that total capex for 2017 was $17.2 billion. The CFO said the capex range for 2018 is anticipated to be in the $17 billion to $17.8 billion range, "even with the commercial launch of 5G."

Verizon is planning to launch three to five 5G markets in 2018, starting with Sacramento, Calif. "We're not seeing the sort of capital intensity that some were assuming," said CEO Lowell McAdam, commenting that 5G didn't require many more sites than 4G network densification. (See Verizon Says 'Up to 5' Fixed 5G Markets Will Go Live in 2H18.)

"We're very comfortable with delivering a gigabit of service," the CEO said of Verizon's initial trials, citing consistent throughput at up to 2,000 feet for its early 5GTF fixed wireless equipment. He said Verizon has "more than 200" 5G test sites "up," and has seen peak speeds of 10 Gbit/s for the service.

Verizon is expecting to start its 5G rollout in earnest in 2019. Nonetheless, Ellis says that -- despite the recent corporate tax cuts -- financial analysts shouldn't expect major swings in the operator's capex, citing the same "inefficiencies" from a spending surge that CTO Hans Vestberg mentioned earlier this month. (See Verizon Says 'Probably No' to Capex Increase After Tax Cut.)

McAdam boasted of Verizon's leadership position in millimeter wave spectrum, especially with the Straight Path acquisition expected to close this quarter. He noted that operators will need at least 100MHz of spectrum to take advantage of the full potential of 5G, especially with high-band spectrum.

"The only one who has that in the market in a big way is us," he said.

Verizon is expecting to move to the 3rd Generation Partnership Project (3GPP) 5G NR standard "very, very quickly" after its initial launch. "We believe there will be mobile devices late in '18, with more in '19," McAdam said, without stating directly when Verizon will switch on mobility support for 5G. (See AT&T's Mobile 5G Plan Leaves as Many Questions as Answers.)

The Verizon CEO talked about the prospects of 5G as a transformative technology across the board. "It will positively impact society like no technology we've seen before," he said.

Speaking of tax reform, Verizon expects it to strengthen the balance sheet, leading to an increase of $3.5 billion to $4 billion in operating cash flow for 2018. The Verizon Foundation will spend $200 million to $300 million on causes this year too, and Verizon will drop some on employees too.

"We will provide details on how we're investing in our employees later today," McAdam said.

For the quarter, Verizon added 1.2 million wireless customers on a monthly contract (postpaid). The operator delivered fourth-quarter net income of $18.8 billion on revenue of $34 billion -- up 5% year-on-year. For all of 2017, Verizon reported revenue of $126 billion. Earnings per share for the fourth quarter -- adjusted for a number of gains and charges -- ran at $0.86 a share. Thomson Reuters had been expecting an EPS of $0.88 for the quarter.

Verizon's shares are down 0.79% at $53.03 in trading Tuesday.

— Dan Jones, Mobile Editor, Light Reading

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Joe Stanganelli 2/5/2018 | 9:30:42 PM
Re: 5G capex @kq4ym: Well, it's a technically correct half-truth. The difference is not in inherent 4G densification requirements versus inherent 5G densification requirements if all other things are equal.

But all things are not equal. The new spectrum that is being released to accommodate 5G demand is of a higher frequency -- and, therefore, will (as I understand it, anyway) require greater densification.
kq4ym 2/5/2018 | 12:43:50 PM
Re: 5G capex Interesting how Verizon is saying "5G didn't require many more sites than 4G network densification," when the range is going to be less than a half mile typically and less with obstructions abounding in city environments. Maybe that capex projection might not be all that's appearing to be.
brooks7 1/26/2018 | 11:10:37 PM
Re: 5G capex @Duh!,


You mean sending purchasing folks to acting school so they can cry on demand?


Duh! 1/26/2018 | 7:32:38 PM
Re: 5G capex From first-hand experience, I can tell you that Verizon has raised it to an art form.
Joe Stanganelli 1/26/2018 | 6:01:29 PM
Re: 5G capex @Duh: To be fair, are you aware of a business where that's not business as usual? ;)
Duh! 1/26/2018 | 11:43:01 AM
Re: 5G capex Hammering suppliers on pricing is business as usual at Verizon.
msarid 1/25/2018 | 5:57:06 PM
Re: 5G capex Do you think perhaps they're just going to hammer the suppliers on ASPs? Or maybe getting dumber boxes with better software-defined capabilities? Agree that the dollar amount on the guide doesn't match the language.
DanJones 1/24/2018 | 12:35:11 PM
Re: 5G capex That's the big question isn't it? All 4G projects? What exactly?
Duh! 1/24/2018 | 12:15:00 PM
Re: 5G capex Remember, that's 5G + OneFiber.

Yeah, reallocation is what they're talking about, and it makes sense except... reallocation from what? Are any big enough projects winding down? I can't think of any.
DanJones 1/24/2018 | 11:46:21 AM
Re: 5G capex Possible, but Ellis said in the same Q&A that there weren't going to be any big surprises with capex swings. I figure cut in other areas to allocate to 5G, maybe?
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