Verizon CFO Shammo: 9 Observations on the Wireless Industry

Industry-shaper Verizon would buy still more spectrum if it could, and "unlimited" is becoming a meaningless term, CFO Fran Shammo said at a recent Goldman Sachs event.

Verizon, which runs the nation's largest wireless network, plays a significant role in shaping the world's expectations about mobile devices, mobile speeds and the role of technology in our daily lives. Fran Shammo, Verizon's chief financial officer, sat for an interview—replacing a whisked-away CEO Lowell McAdams—at the Goldman Sachs Communacopia Conference Sept. 20 and offered what comes as close to frank conversation as this industry gets. Below, with thanks to a transcript from Thompson Reuters, are nine worth-knowing points or opinions that Shammo expressed.

1. Verizon has all the spectrum it needs for several years, but it will still consider buying more.

Thanks to Verizon's recent spectrum acquisition from SpectrumCo, Shammo told interviewer and Goldman analyst Jason Armstrong, "I would say, at least from where we sit today, [we have] a four- to five-year path where we really have no urgency for spectrum."

Still, he suggested, one has to grab spectrum when one can.

"The [Federal Communications Commission] is looking at some auctions now. Will we participate in those auctions? Yes, obviously, we will."

2. Verizon's Long Term Evolution (LTE) network is the best.

"I don't think anyone can dispute that Verizon Wireless [Verizon's wireless division] has absolutely a strategic advantage when it comes to LTE," said Shammo.

Verizon Wireless' coverage, he continued, is "more than two times all the other carriers combined. ... I think it is pretty evident that the Verizon Wireless LTE network is superior to everybody else's, and that means something to people, because when you want that coverage, you have it. We've invested a lot in LTE, and I think we have a strategic advantage."

3. The iPhone 5 is the first smartphone to make LTE really matter.

Shammo asserted that Verizon Wireless' "early leadership" in LTE has for a while essentially been a tag line and marketing message. The iPhone 5, he said, "is really the first device that I think brings [LTE] to the forefront."

4. Verizon Wireless, like a lot of its enterprise customers, is waiting to see who gets elected and how that affects the corporate tax rate.

"There is a big event that is going to happen on Dec. 31 and regardless of who is elected, they need to deal with that tax cliff issue. So I think a lot of enterprise companies are sitting back saying, 'Ok, what is going to happen here?'" said Shammo.  He continued:

The other big question, too, is we've been talking about corporate tax reform and getting into a better corporate tax rate. Well, does that happen or doesn't that happen? And that really [influences] how does an enterprise decide to invest money? Right now ... a lot of corporations are sitting on the sidelines building their balance sheets, building up cash, and they haven't made those decisions. And when you don't have those decisions being made, your enterprise business, because it always takes investment to invest in new technologies and switch over from legacy technology to new technology, and what we are seeing is that it's just— as I said, we are kind of stuck in the mud at this point.

5. AT&T wanting to buy T-Mobile, in part for its spectrum, is not the same as Verizon Wireless being allowed to buy up large portions of spectrum from several cable companies.

"[The SpectrumCo deal] was just a spectrum purchase, which was very different than buying a whole other company and taking the company out of the marketplace," said Shammo. "I think there is really a big difference between those two. But from a consolidation standpoint, I think we will see consolidation in this industry. I think we almost have to see that."

Though, he added, it's very unlikely that Verizon would buy another carrier. The regulatory agencies, he explained, "don't have an appetite for that."

6. Despite some initial backlash, Verizon's Share Everything plans have been even more successful than anticipated.

"We have more people going to Shared than we actually anticipated," said Shammo. "And the thing that really surprised us is we have a lot of people coming off unlimited to go to Shared."

7. Shared plans and good marketing are making "Unlimited" a meaningless word.

"What customers are understanding—and through our good sales routine—is once you explain to a customer their usage on a monthly basis, unlimited is just a word," said Shammo. "It doesn't really mean anything. I think a lot of customers think they consume a lot more data than they really do. So that whole unlimited thing, I think, is going by the wayside, and they see the benefit of going to the Shared plan."

8. The Share Everything plans secure Verizon Wireless' future.

"The plan is doing exactly what we thought the plan would do because when you think about revenue growth into the future, the shared revenue plan—and what I'll call revenue per account, if you will—is really the critical piece, because there are two functions," said Shammo. He continued:

One is to get people to share so that data becomes the most significant piece of the plan, and the more data they consume, the more they will have to buy up in bundles.

The second one is to make it easier for customers to attach more devices. When you think about the future of the car, the home, medical devices, and anything else that you want to attach to that wireless network, it is now easy to attach those devices ... and that is really what drives the future revenue growth.

9. The iPhone is well worth the trouble and expense that comes with it.

During the second quarter, iPhone sales at AT&T and Verizon Wireless were down from the quarter before, due to—it has been suggested—consumers holding out for the September launch of the iPhone 5.

"If you go back to the second quarter," said Shammo, "and I know everybody is focused around the iPhone, and how margins dilute when you sell more iPhones. But the fact is, we sold 200,000 more iPhones in the second quarter of this year than we did last year, and we showed an all-time record margin.

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